Executive Summary:
Effective July 16, 2022, a non-resident (NR) taxpayer of India is required to file ‘Form 10F’ electronically via the Income Tax e-filing portal to claim an income tax treaty benefit in India.
Background
Any taxable income earned by a NR taxpayer in India is subject to withholding taxes (otherwise known as a tax deduction at source) under the Indian Income-tax Act, 1961 (Act).
In order to avail the Double Taxation Avoidance Agreements benefits, a NR taxpayer is required to furnish certain specified documents including certain specific information in the Form 10F with the Indian payer along with a valid Tax Residency Certificate (Certificate) obtained from the tax authorities of their country of residence.
In case where any of the required information of Form 10F (such as nationality, status, tax period, tax identification number and address of the NR taxpayer) is available in the TRC (which is otherwise available in most cases), a stand can be taken that furnishing of Form 10F is not mandatory in such cases for claiming the treaty benefit. However, it is pertinent to note that while a position may be taken that e-filing Form 10F is not mandatory, for practical purposes and to avoid any litigation with revenue authorities, the tax deductors/payers do insist for e-filed Form 10F for applying the withholding tax rate considering that the withholding provisions in India are quite stringent.
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 (i.e., the Indian payor). The payor is then responsible for deducting the withholding tax as per the tax treaty. These documents are then retained by the NR taxpayer and should be available to provide to the Indian Tax Administration upon request.
What information is provided in Form 10F
A NR taxpayer must include the following details in a Form 10F:
- Status (individual, company, firm, etc.) of the taxpayer
- PAN of the taxpayer
- Nationality (in case of an individual) or country or specified territory of incorporation or registration (in the case of others)
- Tax Identification Number of the taxpayer, in the country of Residence or Unique Tax Identification Number
- Period for which residential status is applicable
- Address of the taxpayer in country of residence
Procedure for filing Form 10F
Previously, the NR taxpayers used to furnish the above requisite information in form 10F manually. However, the Indian Tax Administration has now mandated the NR taxpayers to file Form 10F electronically on the Income tax e-filing portal along with the valid Certificate to avail tax treaty benefits.
Failure to comply
Failing to file the Form 10F electronically may result in withdrawal of treaty benefits. Furthermore, there may be tax and penal consequences on the Indian resident payor (in instances where the NR taxpayer applies the reduced treaty tax rate in the absence of Form 10F) for any shortfall/nil deduction of tax, as the case may be.
Practical difficulties
To e-file the Form 10F, a NR taxpayer must have a login to the Income Tax portal which requires an Indian Tax Identification Number known as Permanent Account Number (PAN). Additionally, the form is required to be signed by an authorized signatory using a Digital Signature (DSC), and as such, the authorized signatory should obtain a DSC.
One-time relief
The requirement to file the Form 10F electronically w. e. f. April 1, 2023, means that NR taxpayers who otherwise were not required to have a PAN in India now must obtain one.
To mitigate this hardship faced by NR taxpayers without a PAN, the Central Board of Direct Taxes (CBDT) provided relief to impacted NR taxpayers by allowing them to manually file Form 10F until March 31, 2023. The same can then be submitted with the payor paying income to the NR taxpayer.
Takeaway for NR taxpayers of India
NR taxpayers who do not have a PAN and do not otherwise need a PAN to comply with statutory requirements, could take advantage of this one-time relief provided by CBDT and file their Form 10F manually by March 31, 2023. However, there is a lack of clarity on whether the said relief will be provided to NR taxpayers post March 31 2023. As such, NR taxpayers may consider obtaining a PAN now to comply with their tax obligations and also to ensure that source deductions are not deducted at a higher rate which is required for NR taxpayers who do not have a PAN and, as such, are unable to file Form 10F.
