One of the key and major amendments introduced while passing the Finance Bill, 2023, by Lok Sabha relates to the amendment in Sec. 115A of the Income Tax Act w.r.t. an increase in withholding tax rates from 10% (plus applicable surcharge and cess) to 20% (plus applicable surcharge and cess) on royalties and fees for technical services. Further, the Indian Income Tax Act provides an option for non-residents to discharge their tax liability either in accordance with the provisions of Income Tax Act or Double Taxation Avoidance Agreements (“DTAA”), whichever is more beneficial. Since most of the treaties have concessional tax rates of 10% or 15%, foreign companies or non-residents are desirous of claiming treaty benefits.
Foreign companies that are desirous of availing themselves of beneficial rates as per the respective tax treaty of their country of residence are required to furnish certain specified documents, including specific information in Form 10F with an Indian payer, along with a valid tax residency certificate obtained from the tax authorities of the country of their residence. In cases where any of the required information on Form 10F (such as nationality,status,tax period, tax identification number, and address) is available in TRC,a stand can be taken that furnishing Form 10F is not mandatory in such cases for claiming the treaty benefit. Further it is important to note here that, for practical purposes and to avoid any litigation with revenue authorities, tax payers generally insist on Form 10F for applying the withholding tax rates.
Form 10F is a self-declaration form completed by a NR taxpayer receiving income from India and provided to the person responsible for deducting withholding tax. The payer is then responsible for deducting tax as per tax treaties.
Non-residents were required to file Form 10F electronically by virtue of Notification No. 03/2022, dated July 16, 2022. These non-residents or foreign companies were mandatorily required to obtain PAN after this notification since, mechanically, PAN is required to create an account on the Income Tax Portal and file Form 10F. To mitigate this,CBDT has provided one-time relief to non-residents not having PAN and not required to have PAN to manually file Form 10F until March 31, 2023, further extended to 30, 2023.W.E.F. October 1, 2023 The Income Tax Department has provided additional functionality on the portal to allow non-residents without a PAN and those not required to have a PAN to register themselves, hence making it mandatory for all non-resident taxpayers availing of treaty benefits to file Form 10F online.
Form 10F is required to be signed by an authorized signatory through the DSC approach, and the DSC must be PAN-based. Thus, the authorized person for the non-resident must obtain a DSC in India and digitally sign the form to complete the submission.
It should be noted that a general relaxation is provided under 115A from filing income tax returns for non-residents when tax is deducted under this section, and non-residents have only income from dividends, interest, royalties, and fees for technical services. Hence, contrary to this, if a non-resident prefers to use beneficial tax rates, they will be obligated to file income tax returns in India in the absence of any exemption notification or relevant section.