Submission of No Objection Certificate in case of remittance to a non-resident - Income Tax - 10/2002

Submission of No Objection Certificate in case of remittance to a non-resident Circular : No. 10/2002, dated 9-10-2002 . 1. Section 195 of the Income-tax Act, 1961 provides that any person responsible for paying to a non-resident any sum chargeable under the Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by cheque or draft or any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. 2. The Reserve Bank of India have provided in their Office Manual that no remittance shall be allowed unless a No Objection Certificate has been obtained from the Income-tax Department. It has since been decided that henceforth remittances may be allowed by the Reserve Bank of India without insisting upon a No Objection Certificate from the Income-tax Department and on the person making the remittance furnishing an undertaking (in duplicate) addressed to the Assessing Officer accompanied by a certificate from an Accountant (other than an employee) as defined in the Explanation below section 288 of the Income-tax Act, 1961 in the Form annexed to this circular. The person making the remittance shall submit the undertaking along with the said certificate of the Accountant to the Reserve Bank of India, who in turn, shall forward a copy thereof to the Assessing Officer. 3. The contents of this Circular may be brought to the notice of all the officers working in your charge. Undertaking To .............................................................................. (Designation of the Assessing Officer) .............................................................................. .............................................................................. I/We........................................................................................................................................................... (Name, address Permanent Account Number) propose to make a remittance of.................................................................................................. (Amount) being........................................................................................................................................................... (nature of payment) to................................................................................................................................................................... (name and complete address of the person to whom the remittance has been made) after deducting a sum of Rs........................ being the tax @.............................., which is the appropriate rate of tax deductible at source on the said amount of remittance. 2. A certificate from the accountant as defined in Explanation below section 288 of the Income-tax Act, certifying the nature and amount of income, amount of tax payable and the amount actually paid, is also annexed. 3. In case it is found that the tax actually payable on the amount of remittance made, has either not been paid or has not been paid in full, I/we undertake to pay the said amount of tax along with interest found due in accordance with the provisions of the Income-tax Act. 4. I/We will also be subject to the provisions of penalty and prosecution for the said default as per the Income-tax Act. 5. I/We also undertake to submit the requisite documents, etc., for enabling the Income-tax Department to determine the nature and amount of income and tax, interest, penalty, etc., payable thereon. (Name and Signature) Date............................... Place.............................. (The Undertaking shall be signed by the person authorised to sign the return of income of the person making the payment). Certificate I/We have examined the books of accounts of M/s............................................................ ....................................................................................................................................................................... (Name, address and Permanent Account Number of person making the remittance) for ascertaining the nature of the remittance, of.................................................................................................................................................................. (amount of remittance) to................................................................................................................................................................... (Name and complete address of the person to whom the remittance is being made) and the rate at which the tax is deductible at source thereon and hereby certify that a sum of Rs........................... has been deducted as tax at the appropriate rate and has been paid to the credit of the Government. ................................................. Accountant Place...................... Date....................... Circular : No. 759, dated 18-11-1997. Clarification 1 1. Circular No. 759 dated 18-11-1997 was issued by the Board to dispense with the requirement of submission of a No Objection Certificate from income-tax authorities for remittance to a non-resident as required by the Reserve Bank of India (RBI). In paragraph 2 of the said Circular, it was stated that henceforth remittances may be allowed by the RBI without insisting upon a No Objection Certificate from the Income-tax Department provided the person making the remittance furnished an undertaking in duplicate addressed to the Assessing Officer which was accompanied by a certificate from an accountant other than an employee as defined in the Explanation below section 288 of the Income-tax Act, 1961 in the form annexed to the said Circular. The person making the remittance had to submit the undertaking along with the said certificate of the accountant to the RBI, who would, in turn forward a copy thereof to the Assessing Officer. 2. A number of references have been received by the Board stating that RBI had delegated powers to authorised dealers to allow certain types of remittances to non-residents without obtaining approval of RBI. In such cases, RBI cannot forward the undertaking and certificate of the accountant to the Assessing Officer as prescribed in Circular No. 759. The RBI has already issued a Circular - AD (MA series) Circular No. 48, dated 29th November, 1997 (see Annex) to all authorised dealers in foreign exchange directing them to forward a copy of the certificate together with a copy of the undertaking to the office of the Assessing Officer of the Income-tax Department as indicated in the undertaking. In view of the foregoing, it is clarified that Circular No. 759 would also be applicable to remittances made through authorised dealers in Foreign Exchange. 3. In accordance with Circular No. 759, the undertaking to be submitted by the person making the remittance to a non-resident is required to be signed by the person authorised to sign the return of income of the person making the payment. The person authorised to sign a return of income in the case of a company, in accordance with section 140 of the Income-tax Act, 1961 is the Managing Director and each undertaking for each remittance has, therefore, to be signed by the Managing Director. Representations pointing out administrative difficulties experienced by companies have been received. It has, therefore, been decided that the undertaking to be submitted at the time of making a remittance to a non-resident shall be signed by the person authorised to sign a return or a person so authorised by him in writing. 4. It is also clarified that Circular No. 759 will cover those remittances for which RBI had prescribed the production of a No Objection Certificate from the income-tax authorities under its Exchange Control Manual. Further, if an order under section 195(2) has been obtained by a person responsible for deducting tax, the new procedure of filing an undertaking along with a certificate prescribed in Circular No. 759 would not be applicable. 5. The contents of this Circular may be brought to the notice of all the officers working in your charge. Circular : No. 767, dated 22-5-1998. Annex A.D. (M.A. Series) Circular No. 48, dated 29-11-1997 , issued by the Reserve Bank of India. 1. Presently, authorised dealers have been delegated powers to allow certain types of remittances, subject to, among other things, production of NOC/Tax Clearance Certificate from income-tax authorities. Similarly, Reserve Bank also, while approving remittances for certain purposes, has been insisting on NOC/Tax Clearance Certificate from income-tax authorities. This procedure has been revised as notified by the Central Board of Direct Taxes, in their Circular No. 759 [F. No. 500/152/96-FTD] dated 18th November, 1997. In terms of the new procedure, a person making remittance of foreign exchange would not be required to produce NOC/Tax Clearance Certificate from income-tax authorities instead, the applicants have to submit an undertaking, in duplicate, addressed to the Assessing Officer, which should be signed by the person authorised to sign the income-tax returns of the applicant, together with a certificate (in duplicate) from the Accountant (other than the employee of the applicant) as defined in the Explanation below section 288 of the Income-tax Act, 1961 in forms prescribed in the Government Notification. Authorised dealers should, therefore, before allowing the remittance obtain the aforesaid Undertaking accompanied by a certificate from the Accountant for compliance with the income-tax provisions, where necessary. 2. Authorised dealers should, after making the remittance, immediately forward a copy of the certificate together with a copy of Undertaking to the office of Assessing Officer of the Income-tax Department as indicated in the Undertaking. The other copy each of the Undertaking and Certificate should be kept on record for verification by the Internal Auditors of the authorised dealer/Inspecting Officers of the Reserve Bank. 3. Amendments to the Exchange Control Manual will be advised separately. Meanwhile, authorised dealers may bring the contents of this circular to the notice of their concerned constituents. 4. The directions contained in this circular have been issued under section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act. Clarification 2 1. Circular No. 759 dated 18-11-1997 was issued by the Central Board of Direct Taxes to dispense with the requirement of a No Objection Certificate from income-tax authorities for remittance to a non-resident as required by the Reserve Bank of India. By the aforesaid circular, remittances were allowed to be made by the RBI without insisting upon a No Objection Certificate from the Department provided the person making the remittance furnished an undertaking in duplicate accompanied by a certificate from an accountant. The format of the application and the certificate has been circulated to the authorised dealers by the Reserve Bank of India through their Circular No. AD (MA Series) Circular No. 48 dated 29-11-1997. 2. However, it has recently been observed that often the certificates have been issued prescribing nil deduction of tax at source in certain cases where tax was liable to be deducted or prescribing deduction of tax at a lower rate than was payable on the basis of the provisions of the Act and the applicable DTAC. The certificate does not provide for necessary details or the reasons for adopting a certain rate for deduction of tax. This results in unnecessary calling of information from the assessees at a later stage and thus gives rise to an avoidable perception of grievance on the part of the tax payer. Therefore, in order to streamline the procedure as well as to ensure the correct deduction of tax at source, the proforma of the undertaking to be given by the remitter and the certificate to be issued by a chartered accountant have been re-considered and new formats are being prescribed which are enclosed as Annexures A and B to this circular. The revised proforma for undertaking as well as the certificate shall to apply in terms of Circular No. 759, dated 18-11-1997 of CBDT. Other requirements of the Circular remain unchanged. It is reiterated that the persons making the remittances shall submit the undertaking and certificate as per Annexures A and B to the Reserve Bank of India/authorised dealer banks, who shall in turn forward the same to the Assessing Officer mentioned in the undertaking. 3. The Reserve Bank of India is being requested to circulate the amended format of the undertaking and the certificate to their authorised dealers. 4. This circular comes into effect with immediate effect. Annexure A Form Application for remittance under section 195 of the Income-tax Act 1. Name and Address of the Applicant and principal place of business : 2. Name and Address of the Assessing Officer having jurisdiction over the remitters : 3. Applicants PAN Number : 4. Name and address of the beneficiary of the remittance and the country towhich remittance is made : 5. Amount and nature of remittance : 6. Rate of deduction of tax at source : 7. Reference to provision of Act/DTAA under which the rate has been determined : 8. Certificate (i) I/We propose to make the above remittance as per deduction of tax at source indicated above. We have obtained a certificate from M/s. ..... who is an accountant as defined in section 288 of the Income-tax Act, certifying the amount, nature and correctness of deduction of tax at source. (ii) In case the income-tax authority at any time finds that tax actually deductible on the amount of remittance has either not been paid or not paid in full, I/we undertake to pay the said amount of tax along with interest due. (iii) I/We shall also be subjected to the provisions of penalty for the said default as per the provisions of Income-tax Act. (iv) I/We undertake to submit the requisite documents, etc., for enabling the income-tax authorities to determine the nature and amount of income of the beneficiary of the above remittance as well as documents required for determining our liabilities under the Income-tax Act as a person responsible for deduction of tax at source. (v) The information given above is true to the best of my/our knowledge and belief and no relevant information has been concealed. .............................................. Name and Signature [To be signed by a person responsible for signing the return of income (as to provisions of section 139(A) of the Income-tax Act) of the person making the remittance]. Annexure B Certificate I/We have examined the agreement (wherever applicable) between M/s. ............................ ..................................................................... and M/s. ........................................................ requiring the remitters beneficiary above remittance as well as the relevant documents and books of account required for ascertaining the nature of remittance and for determining the rate of deduction of tax at source as per provisions of section 195. We hereby certify the following : 1. Name and address of the beneficiary of the remittance and the name of the foreign country to which remittance is being made. : 2. Amount of remittance is foreign currency indicating the proposed date/month and bank through which remittance is being made. : 3. Details of tax deducted at source, rate at which tax has been deducted and date of deduction. : Foreign Currency Indian Currency Amount to be remitted ..... ..... Tax deducted at source ..... ...... Actual Amount remitted ..... ..... Rate at which deducted ..... ..... Date of Deduction ...... ..... 4. In case the remittance as indicated in (2) above is net of taxes, whether tax payable has been grossed up? If so, computation thereof may be indicated. : 5. If the remittance is for royalties, fee for technical services, interest, dividend, etc., the clause of the relevant DTAA under which the remittance is covered along with reasons and the rate at which tax is required to be deducted in terms of such clause of the applicable DTAA. : 6. In case that tax has been deducted at a rate lower than the rate prescribed under the applicable DTAA, the reasons thereof. : 7. In case remittance is for supply of articles or things (e.g., plant, machinery, equipment, etc.) or computer software, please indicate : : i. Whether there is any permanent establishment in India through which the beneficiary of the remittance is directly or indirectly carrying on such activity of supply of articles or things? ii. Whether such remittance is attributable to or connected with such permanent establishment? iii .If so, the amount of income comprised in such remittance which is liable to tax. iv. If not, the reasons in brief therefor. 8. In case remittance is on account of business income please indicate : : i. Whether such income is liable to tax in India? ii. If so, the basis for arriving at the rate of deduction of tax. iii. If not, the reasons thereof. 9. In case tax is not deducted at source for any other reason, details thereof. : (Attach separate sheet duly authenticated wherever necessary) ......................................................................................... Name, Address and registration numbers (To be signed and verified by an Accountant as defined in section 288 of the Income-tax Act). Circular : No. 10/2002, dated 9-10-2002.