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Lower TDS rates for Non Residents

Non residents are eligible to claim, when DTAA provisions are applicable, the lower of Income tax of DTAA rates, whichever is beneficial to them. However, provisions of XVII-B relating to Tax Decution at source requires the payer to deduct tax at higher rates where PAN of the payee (Non-resident in this case) is not available. Therefore in effect the Non Resident is not able to claim the benefit of DTAA rates due to this provision of TDS.

Provisions of TDS requires tax to be deducted at 20%. In order to reduce compliance burden now relaxations are provided to Non Resident payee in cases where they do not have PAN. This is provided in Rule 37BC of the Income Tax Rules 1962.

Such relaxation is available only for payments in the nature of royalty, fee for technical service, interest and payment on transfer of capital asset.

The payee is also required to furnish the following documents

  • name, e-mail id, contact number;
  • address in the country or specified territory outside India of which the deductee is a resident;
  • a certificate of his being resident in any country
  • Tax Identification Number of the deductee in the country or a unique number on the basis of which the deductee is identified by the Government of that country of which he claims to be a resident.

In such cases the payee can claim the lower rates available as per DTAA

Roshan Thomas, FCA, DISA(ICAI)

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