We know that TDS in most cases of payment made to NRI is covered under section 195. Now there are instances where TDS on royalty or fees for technical services should be deducted at 10% as per section 195. However since many NRI don’t have Indian PAN card they come under section 206AA wherein it has been stated that:
“Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
(i) at the rate specified in the relevant provision of this Act; or
(ii) at the rate or rates in force; or
(iii) at the rate of twenty per cent.”
Thus, because of this provision TDS is deducted at 20% on such royalty and fees for technical services also. Now a rule 37BC was introduced to save higher TDS deduction of such people which is as under:
“In the case of a non-resident, not being a company, or a foreign company (hereafter referred to as ‘deductee’) and not having permanent account number the provisions of section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset, if the deductee furnishes the details and the documents specified in sub-rule (2) to the deductor.
(2) The deductee referred to in sub-rule (1), shall in respect of payments specified therein, furnish the following details and documents to the deductor, namely:—
(i) name, e-mail id, contact number;
(ii) address in the country or specified territory outside India of which the deductee is a resident;
(iii) a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate;
(iv) Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.”
Therefore if the non resident provides such information he won’t be covered under section 206AA and higher TDS won’t be charged.
Now people might argue that even if 206AA was there such non resident could have taken benefit of DTAA as most DTAA has lower rate and whenever there is a conflict between Income tax act and DTAA, the one more beneficial for assessee would be selected.
Agreed, but AO were not able to check each and every DTAA and they would send notices to deductor for lower deduction and therefore this step was important.
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