Volume 6, Issue 13

10 August 2013

Tax Alert

New Form to be furnished in addition to the Tax Residency Certificate (TRC) for claiming tax treaty benefits

The Indian Finance Act, 2012 introduced the requirement of non-residents furnishing a Tax Residency Certificate (TRC) to avail benefits under the Double Tax Avoidance Agreement (DTAA) with India. It also provided that the TRC should contain particulars as may be prescribed by the government. This provision created a furore among foreign investors as it was not always possible to obtain all the particulars prescribed in the TRC from a foreign government. Realising this difficulty and bowing to pressure from the international investor community, the Finance Act, 2013 amended sections 90 and 90A of the Income Tax Act, 1961 (ITA) and dropped the requirement of the TRC having to contain the prescribed particulars. Instead, it was provided that every non-resident who wishes to claim any relief under DTAA has to furnish to the Indian tax authorities certain prescribed documents and information as may be notified, in addition to the TRC.

In pursuance of these powers, the Central Board of Direct Taxes (CBDT) has now issued a Notification (No. 57 of 2013, dated 1 August 2013), amending Rule 21AB of the Income Tax Rules, 1962 and prescribing a new Form 10F for mandatory particulars to be provided by the non-resident seeking to avail treaty benefits, in addition to the TRC. This alert summarises the amendments brought about by CBDT’s latest notification.

Notification issued by CBDT

The amended Rule shall come into force from 1 April 2013. The new Rule requires the non-resident seeking treaty benefits to furnish the following information:

  • Status of the person seeking treaty benefits (i.e. individual, company, firm, etc.)
  • Nationality (in case of individuals) or country or specified territory of incorporation or registration (in case of others)
  • Tax identification number in the country or specified territory of residence or, if 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 specified territory
  • Period for which the residential status, as mentioned in the TRC, is applicable
  • Applicant’s address for the period for which the certificate is applicable

The revised Form also calls for a declaration from the applicant that it has obtained the TRC from the government of the country/specified territory of which it is a resident.

The information contained in Form 10F should be verified by the applicant. Furthermore, if some of this information is already a part of the TRC, the same need not be provided again in this Form.

The notification also requires the applicant to keep and maintain such documents as are necessary to substantiate the information provided in Form 10F. It also authorises the Indian income tax authorities to ask the applicant for these documents for verification.

SKP’s Comments

  • The information prescribed is only general information and there should not be any difficulty in providing the same.
  • However, the question that arises is that to whom does the non-resident furnish this Form? There is no clarity in the Rule or the Form as to where it is to be submitted.
    In our view, when a remittance is made to a foreign company/foreign resident after applying the beneficial provisions of the tax treaty, the Indian deductor would be required to obtain the TRC and duly filled Form 10F from such foreign company/foreign resident. Thus, for example, if a remittance is made on account of royalty by an Indian Company to a Singapore Company and taxes have been withheld at a beneficial rate of 10% provided under Article 12 of the India Singapore Tax Treaty (as against 25% provided under the Act), the Indian Company would have to obtain the TRC and Form 10F from the Singapore Company.
    Similarly, when an FII based in Singapore claims treaty benefits in respect of capital gains earned in India, it will have to submit to the custodians and to its tax consultants the said Form in addition to the TRC.
  • The amendments to sections 90 and 90A are effective from financial year (FY) 2012-13. The new Rule has been made effective 1 April 2013. A Rule being procedural in nature, when made effective 1 April 2013, means that it applies prospectively from 1 April 2013 i.e. from FY 2013-14. The challenge is how one can comply with this Notification for FY 2012-13 and for the period up to 1 August 2013 when there was no such Notification and where the taxpayer has only furnished the TRC. The CBDT should clarify this aspect. Since four months of FY 2013-14 have already gone by, a non-resident who seeks treaty benefits and has submitted the TRC to any Indian party should now also submit Form 10F if the TRC does not contain any of the information that the Form contains.
  • The new rule will bring certainty and help in clearing the air with respect to the information and documents required in addition to the TRC and therefore, the amendment and the notification of the new Form are both welcome.