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August 8, 2022
2022-1199

Indian Tax Administration mandates nonresident taxpayers to furnish information electronically to avail Double Taxation Avoidance Agreements benefits

  • For benefits available under Double Taxation Avoidance Agreements, nonresident taxpayers will have to electronically provide specific information via Form 10F.

  • This may also require an Indian Tax Identification Number and registration on the Income Tax E-filing Portal.

  • Nonresident taxpayers should evaluate the impact of the notification, for Fiscal Year 2021/22 compliance as well as on ongoing transactions.

Executive summary

On 16 July 2022, the Indian Tax Administration (ITA) issued a notification 1 mandating nonresident (NR) taxpayers to electronically furnish specific information in specified form (Form 10F) to avail Double Taxation Avoidance Agreements (DTAA) benefits. This may effectively require NR taxpayers to obtain an Indian Tax Identification Number (PAN), register on the Income Tax E-filing Portal (Portal) and file Form 10F electronically.

The notification comes into force immediately and the NR taxpayers can electronically file Form 10F for the Fiscal Year (FY) 2021/22.

Detailed discussion

Background

The Income Tax Laws require an NR taxpayer to provide a Tax Residency Certificate (TRC) to avail DTAA benefits. NR taxpayers are required to furnish additional documents and information in Form 10F if certain prescribed details are not available in the TRC.

Presently, the NR taxpayers provide the TRC and Form 10F either in physical or electronic copy to the payer of income to avail DTAA benefits at the time of withholding. Taxpayers are not required to file the TRC and Form 10F along with the tax returns. These documents are retained by the taxpayers and furnished to the ITA upon request or during a tax audit.

Current notification

The ITA has now issued a notification that requires NR taxpayers to electronically file Form 10F on the Portal. The TRC is also required to be attached when e-filing Form 10F.

The notification is effective immediately and the Portal allows filing of Form 10F for the FY 2021/22. For subsequent FYs, filing may be done as permitted by the Portal.

Implications

While the notification addresses a long-standing question on the mode of furnishing Form 10F and the TRC by the NR taxpayers to the ITA, it also creates compliance requirements and practical challenges. NR taxpayers may be required to obtain a PAN (which may not be mandatory otherwise in all cases) and register on the Portal, to be able to electronically file Form 10F.

Several representations are presently being made to the ITA to alleviate the practical difficulty caused for NR taxpayers due to the mandatory e-filing of Form 10F. Clarity is also anticipated on the filing methodology for subsequent FYs. However, NR taxpayers should evaluate the impact of the notification, for FY 2021/22 compliance as well as on ongoing transactions.

Further clarity may be required from the ITA to ascertain whether compliance with the notification is a prerequisite for the payer of income to consider DTAA benefits at the time of withholding.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (India)

Ernst & Young LLP (United States), Indian Tax Desk

Ernst & Young Solutions LLP, Indian Tax Desk, Singapore

Ernst & Young LLP (United Kingdom), Indian Tax Desk, London

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

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ENDNOTE

1Notification No. 3/2022 dated 16 July 2022.

 

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