Last updated: August 21st, 2021 6:34 PM

TDS on Payments to Non-Residents

The CBDT vide a Notification No. 18/2021, dated March 16, 2021, issued ‘Income-tax (5th Amendment) Rules, 2021’ to further amend the Income-tax Rules, 1962. With this amendment, CBDT inserted New Rule 29BA and released new FORM No. 15E for determining the sum chargeable to tax for TDS on payments to non-residents as per section 195(2) of the Income Tax Act, 1961. This is the facility provided by the CBDT for online filing of applications seeking a determination of tax to be deducted at source on payment to non-residents.

Synopsis of Notification

CBDT Notifies Form 15E and Rule 29BA to determine Income for TDS on Payment to Non-residents under Section 195 of the Income Tax Act.

• A new rule, Rule 29BA has been inserted under Income-tax Rules concerning an application for grant of certificate for determination of the appropriate proportion of sum (other than Salary), payable to a non-resident, chargeable in case of the recipients.

• ‘FORM No. 15E’ has been inserted for furnishing the application to Assessing Officer (AO) under Rule 29BA read with Section 195.

• The New Rule 29BA and Form No. 15E will come into force with effect from April 1, 2021.

Section 195(2) of the Income Tax Act

Section 195(2) of the Income Tax Act specifies the procedure to provide for filing online applications for a lower or nil TDS certificate. A non-resident can apply online in electronic form for a lower or nil certificate under section 195 from the sum payable to a non-resident.

• Section 195(2) of the act empowers the CBDT to prescribe the form and manner in which online application can be made to the Assessing Officer to determine the appropriate proportion of sum chargeable to tax on which tax is required to be deducted by the deductor.
• Once such sum or income is determined after the application is filed online in the prescribed form, the tax shall be deducted under section 195(1) only on that proportion of the sum which is chargeable to tax

New Rule 29BA of Income Tax Rules

The new Rule 29BA of Income-tax (5th Amendment) Rules, 2021  deals with the application for grant of certificate for determination of appropriate proportion (other than salary), payable to a non-resident, chargeable in case of the recipients. A new Rule 29BA is inserted in the Income Tax Rules to provide for filing of online application for grant of certificate for determination of the appropriate proportion of sum (other than Salary), payable to a non-resident, chargeable to tax.

New Form 15E

An application for determination of the appropriate proportion of sum chargeable is to be made in new Form 15E electronically. It can be either under digital signature; or through electronic verification code.

Examination of Application by Taxpayer

The Assessing Officer (AO) will examine whether the sum being paid or credited is chargeable to tax under the provisions of the Income Tax Act read with the relevant Double Taxation Avoidance Agreement, if any, and if the sum is chargeable to tax, he shall proceed to determine the appropriate proportion of such sum chargeable to tax.

Factors that would be considered by AO, while granting a certificate

While examining the application, the Assessing Officer shall also consider the following information about the recipient:

• Tax payable on the estimated income of the previous year relevant to the assessment year
• Tax payable on the assessed or returned or estimated income of preceding four previous years
• Existing liability under the Income-tax Act, 1961(43 of 1961) and Wealth-tax Act, 1957(27 of 1957)
• Advance tax payment, tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making an application

Issue of Certificate

In case the AO is satisfied that the whole sum would not be income chargeable in the case of the recipient, then he would issue a certificate accordingly

Validity of Certificate

The certificate shall be valid only for the payment to non-resident named in that certificate and for such period of the previous year as may be specified in the certificate unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. An application for a fresh certificate may be made after the expiry of the period of validity of the earlier certificate or within three months before the expiry thereof.

Prescribed Authority

• The Principal Director General of Income-tax (Systems) or the Director-General of Income-tax (Systems), shall lay down procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents
• The Principal Director General of Income-tax (Systems) or the Director-General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies about the furnishing of Form No.15E and issuance of Certificate

Filing of Form 15E

In the Income-tax Rules, 1962, after form 15D, the FORM 15E shall be inserted. As mentioned above FORM No. 15E has been inserted for furnishing the application to Assessing Officer (AO) under Rule 29BA read with Section 195.

Details Requested in Form 15E

The assessee needs to provide the following details in the form 15E issued under the Income-tax 5^th amendment Rule.

• Basic details of the payer
• Basic details of the recipient
• Details of transactions
• Taxability under the Act
• Taxability under the treaty
• List of documents to be uploaded

Documents Required Along with Form 15E

• Documents such as Relevant documents such as a contract for the sale of goods and/or provisions for services (if any), computation of capital gains, share purchase agreement, bank payment, details of the cost of acquisition, contract note (if any), share certificate (if any), etc.
• Details of assessed/returned/estimated income of payee of preceding four previous years, if available
• Computation of estimated income chargeable to tax and Tax Liability of the previous year
• Copy of Tax Residency Certificate and Form 10F
• Documents in support of the claim of applicability of sections 194LB/ 194LBA/194LC/194LD