Customer Care No.

91-1145562222

Relaxation to non-residents
from higher withholding
tax rate in the absence of
PAN Much needed relief
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The existing provisions of section 206AA of the Income Tax
Act, 1961 ("the Act"), inter alia, provide that any person
who is entitled to receive any amount on which
withholding tax ("WHT") provisions apply shall furnish his
Permanent Account Number ("PAN") to the deductor,
failing which a higher WHT rate of 20% will be applicable.
The above section was introduced by Finance (No.2) Act,
2009 to improve the compliance with the provisions of
quoting PAN and with a view to trail the taxability of the
payments in the hands of recipients. These provisions
were made applicable not only for domestic recipients, but
also for non-resident recipients, where the payments were
subject to WHT provisions.
In the context of non-resident recipients, it may be
relevant to refer the provisions of section 90(2) of the Act,
which provides that where the Indian Government has
entered into an agreement with the government of any
other country outside India for granting relief from tax or
Customer Care
No. 91-11preventing
avoidance
of tax, the provisions of the Act

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On the other hand, section 206AA of the Act also begins with a nonobstante clause that allows this section to override other provisions
of the Act.
Therefore, it has given rise to a dispute as to whether the provisions
of section 206AA of the Act would also override the benefits (if any)
available under the Tax Treaties in the absence of PAN. The revenue
authorities were generally taking a position that the advantage of
beneficial WHT rates as per Tax Treaties (wherever applicable) would
not be available to the non-resident recipients, in case of nonfurnishing of PAN, and the higher WHT rate of 20% would apply.
Accordingly, the above provisions were proving to be an impediment
in terms of ease of doing business in India, as many non-residents
preferred not to do business with Indian companies, if obtaining of
PAN was insisted upon.
Income-Tax Simplification Committee Report
A committee under the chairmanship of Justice R. V. Easwar (Retd.)
was constituted by the Indian Government in 2015 with the broad
objective to study and identify the provisions of the Act that have
Customer
Care
No. 91-11-on account of interpretative differences and
given rise
to litigation

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The committee in its report recommended that "it should suffice if the concerned non-resident
furnished to the deductor, in lieu of such Permanent Account Number, his tax identification
number in the country or the specified territory of residence and in case there is no such
number, then, a unique number on the basis of which the person is identified by the
Government of the country or the specified territory of which such person claims to be a
resident."
The committee observed that in view of the provisions under the respective tax treaties
prescribing specific rates for WHT, there was no justification for providing WHT at a higher rate
than as prescribed under the respective tax treaties. Accordingly, amending the provisions of
section 206AA of the Act was recommended.
Amendment made to section 206AA by Finance Act, 2016 and recent prescribed
rules
In line with the recommendations proposed by the Committee, the provisions of the section
206AA of the Act were amended (w.e.f. June 1, 2016) to provide relaxation from higher WHT
rate while making payment to non-resident recipients in the absence of PAN, subject to the
fulfilment of the prescribed conditions.
For this purpose, the Central Board of Direct Taxes ("CBDT") has recently notified a new Rule
37BC under
Tax Rules, 1962 ("the Rules") vide
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Care Income
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In terms of Rule 37BC of the Rules, the following payments to non-resident recipients not having
a PAN in India shall not attract higher WHT rate under section 206AA of the Act:
(1) Interest;
(2) Royalty;
(3) FTS; and
(4)Payments on transfer of any Capital Asset
In order to avail the above relaxation, the non-resident recipients shall be required to furnish
following details/documents:
(1)Name, e-mail id, contact number;
(2)Address in the home country;
(3)Certificate of being a resident in the home country, if the law of the country provides such a
certificate; and
(4)Tax Identification Number (TIN) in the home country. Where TIN is not available, a unique
identification number through which the deductee is identified in the home country.
Further, to capture and report the details specified in the notification, the corresponding changes
Customer
No.made
91-11have alsoCare
been
in quarterly WHT return (i.e. Form 27Q) applicable forwww.taxmann.com
reporting WHT on

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Customer Care No. 91-11-

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