The scope of total income as per The Income Tax Act, states that following incomes shall be chargeable to tax in India in case of a non-resident.
The payments made by a resident to a non-resident/foreign company towards cross border transactions could be characterized as royalty, fees for technical services, capital gains or business profits. All of it being Indian income are taxable in the hands of non-resident. The payer is required to withhold tax prior to making any payment to the non-resident at the prescribed deduction rate. The withholding would be at the rate of deduction specified under Income Tax Act or as per the DTAA whichever is beneficial to such non-resident subject to certain conditions. Failing to deduct such TDS would lead to 100% disallowance of such huge expense while calculating the taxable income of the person responsible for making such withholding.
A person making the remittance (a payment) to a Non Resident or a Foreign Company has to submit the form 15CA. This form is submitted online. In some cases, a Certificate from Chartered Accountant in form 15CB is required after uploading the form 15CA online. Form 15CA has been classified into 4 parts, Part A, B, C & D. The applicability of the Parts depends on the nature and amount of remittance. These forms are required to be submitted to the authorized dealer through whom the remittance is made.
We have a special team that works exclusively on the withholding tax and related compliances and filing of Form 15CA and 15CB.
Non-resident may have to face a situation where-in his income is subject to tax in India as well as his home country, former based on the principle of source rule and the latter based on principle of residence taxation. In simple words, he is double taxed.
Double taxation may arise on account of the following reasons: —
The Central Government of India is empowered to enter into an agreement with any country for granting relief from double taxation, exchange of information, recovery of tax. India has entered into two types of DTAA with other countries:
India has concluded comprehensive DTAA with almost 94 countries including major countries like Australia, Belgium, Brazil, Canada, China, Germany, Italy, Japan, Mauritius, New Zealand, Singapore, United Kingdom, United States, etc. India has also entered into ‘Tax Information Exchange Agreements’ with countries Argentine, Bahrain, Belize, Maldives, Principality of Liechtenstein, Principality of Monaco, Saint Kitts and Nevis, Bermuda, Bahamas, Isle of Man, British Virgin Islands, Cayman Island, Jersey, Guernsey, Liberia, Macao, Seychelles, San Marino and Gibraltar.
For an expat, if the provisions of the DTAA entered into by India with another country are more beneficial, the tax shall be computed as per the beneficial provisions. Thus, the provisions of the treaty need to be examined for the purpose of ascertaining the tax liability, that is where you would require the assistance of a professional.
Applicable Types of Foreign Income for DTAA
Ensuring this compliance might be tedious and a complex process. We are happy to help. At BCL India, we have years of experience handling clients from across the world, providing suggestions on the structuring of the consultancy agreements by looking into the tax treaty between India and the respective countries.