Remittance to Non-Resident

Any payment made to a non-resident or a foreign company is subject to various rules and regulations. As per provisions of Section 195 of Income tax Act,1961 any person responsible for paying money to a non-resident including foreign company shall deduct income tax for payment made to non-resident.

The remitter making payment to non-resident should furnish an undertaking in Form 15CA containing the information relating to payment of such sum along with certificate attested by Chartered Accountant in Form 15CB. Various aspects of the above compliance are covered as under-:

Part 1: Applicability

Form 15CA is a declaration by any person intending to make remittance:

• to non-resident or to foreign company (irrespective of whether remittance is subject to tax)
• by remitter who can be resident /non-resident/ domestic company/foreign company
• when income accrues/ arises/ received or deemed to accrue/ arise/ received in India (Section 5 of Income Tax Act).

Form 15CB is a certificate required to be filed by the Chartered Accountant when remittance is made

• to non-resident or foreign company is taxable and
• the payment exceeds Rs. 5,00,000/-; and
• when order/ certificate has not been received from Assessing Officer (AO).

Part 2: Non-Applicability

1. 1. When is Form 15CA not required?

• When the remitter makes remittance as per the specified list of payments in Rule 37BB of Income Tax Rules.
  (Refer: Income Tax Rules)
• Not applicable to an individual who does not require RBI approval as per Section 5 of the Foreign Exchange Management Act, 1999.
  Example: Mr. A remitted USD 1,25,000 to his son who went to Germany for higher educations. The amount remitted does not exceed the threshold limit of USD 2,50,000 therefore no RBI approval is required for such remittance and Mr. A is not required to file Form 15CA.

2. 2. When is Form 15CB not required?

• When the remittance is not taxable.
• If the income is taxable in the country of residence of the remittee.
• When the aggregate of remittances during the financial year does not exceed Rs. 5,00,000.

3. 3. Which are the specified payments where Form 15CA/15CB is not required?

   The following are the specified payments where Form 15CA/15CB is not required:

   » Indian investment abroad	» Loans extended to Non-Residents
   » Advance payment against imports» Imports by diplomatic missions» Intermediary trade	» Imports below Rs.5,00,000
   » Payment for operating expenses of Indian shipping companies operating abroad	» Construction of projects by Indian companies including import of goods at project site
   » Freight insurance	» Operating expenses of Indian Airlines companies
   » Travel under basic travel quota (BTQ)/ business travel/ pilgrimage/ medical treatment/ education	» Payments for maintenance of offices abroad
   » Remittances by foreign embassies in India	» Remittance by non-residents towards family maintenance and savings
   » Remittance towards personal gifts and donations	» Remittance towards donations to religious and charitable institutions abroad
   » Remittance towards grants and donations to other Governments and charitable institutions established by the Governments	» Contributions or donations by the Government to international institutions
   » Remittance towards payment or refund of taxes	» Refunds or rebates or reduction in invoice value on account of exports
   » Payments by residents for international bidding

   Part 3: Taxability

   1. 1. What is the tax treatment of the remittances?

   

   *In case if no PAN is furnished then TDS will be deducted at 20% (if details of remittee is not furnished as per Rule 37BC of Income Tax Rules) or relevant TDS rate whichever is higher.
   # Person can opt for Exemption method or Tax credit method whichever is beneficial.

   2. 2. What are TDS rates applicable?

   Nature of Payment	Foreign Company	Other than Foreign Company
   Long Term Capital Gains u/s 115E, 112, 112A	10%	10%
   Other Long-Term Capital Gains (excluding u/s 10(33) & 10(36))	20%	20%
   Short Term Capital Gains u/s. 111A	15%	15%
   Interest payable on moneys borrowed or debt incurred in Foreign Currency	20%	20%
   Royalty & Fees for technical services u/s. 115A	10%	10%
   Winnings from Lotteries, Crossword Puzzles and Horse Races	30%	30%
   Income by way of dividend	20%	20%
   Any Other Income	40%	30%

   3. 3. What are the rates of surcharge and education cess?

   Type of Payment	Income/Payment	Surcharge	Health and Education Cess
   Payments to Foreign Co.	Up to 1 crore	Nil	4%
   	1 crore > 10 crores	2%
   	> 10 crore	5%
   Payments to Non-Residents (Other than Foreign Company)	Up to 50 lakh	10%	4%
   	1 crore > 2 crores	15%
   	2 crore > 5 crores	25%
   	> 5 crores	37%

   Part 4: Compliance

   1. 1. What are the various parts of Form 15CA?

   

   2. 2. What is the procedure for filing Form 15CA and 15CB?

   

   3. 3. What are the details required to file the forms?

   

   Part 5: Frequently Asked Questions (FAQs)

   1. If A Ltd, Indian Company is making remittance to Mr. B, who is a resident of Australia of Rs. 3,80,000 /- then which form is applicable?

   Our view: If the remittance is not exceeding Rs. 5,00,000/-, then A Ltd needs to file Form 15CA- Part A and Form 15CB is not required since the amount is less than INR.500,000 /-

   2. If X Ltd, Indian Company remits money to Y Ltd, Foreign Company of Rs. 10,00,000/-, then what compliance is required to follow by X Ltd?

   Our view:

   • » In case if remittance is not taxable, then X Ltd needs to furnish details in Form 15CA- Part D and Form 15CB is not required.
   • » In case if remittance is taxable and order/ certificate is received from AO then Form 15CA- Part B is required to be furnish and Form 15CB is not required.
   • » In case if remittance is taxable and no order is received from AO, X Ltd will have to obtain certificate in Form 15CB from Chartered Accountant and then furnish details in Form 15CA-Part C.

   3. Mr A resident of Bhutan earned agriculture income of Rs. 60,000/- (land situated in Punjab). Mr A’s assistant (resident of India) remits agriculture income to Bhutan. Which form does Mr. A’s assistant need to file?

   Our view: As agriculture income earned is exempt from tax, therefore information needs to be furnished in Form 15CA- Part D and Form 15CB is not required.

   4. An Indian PSU, B Ltd is liable to pay fees for technical services to X Ltd., foreign company in USA. The fees payable is 4.5 million USD. Rate of exchange is Rs/ USD = 70. At which rate TDS should be deducted and what is the procedure for remittance? Can the form be cancelled and what is the period for cancellation?

   Our view:

   • » As India has entered DTAA with US, the rate of TDS will be 10% (excluding surcharge and health & education cess as per Income Tax Act) or 15% (as per DTAA rate) whichever is beneficial to remittee. Therefore, TDS will be deducted at 10% (excluding surcharge and health & education cess as per Income Tax Act).
   • » In case, if no PAN is furnished or details of X Ltd is not furnished as per Rule 37BC of Income Tax Rules, then TDS will be deducted at 20% (excluding surcharge and health & education cess as per Income Tax Act) or 15% (as per DTAA rate), whichever is higher. In this case TDS rate will be 20%.
   • » As remittance is chargeable to tax and total amount of remittance is more than 5 lakhs, T Ltd will have to obtain certificate in Form 15CB from a Chartered Accountant and then the information will be furnished in Form 15CA- Part C.
   • » Printout of the form electronically signed under digital signature needs to be submitted to the banker prior to remitting the payment.
   • » T Ltd can cancel the form within 7 days of filing Form 15CA.

   5. An Indian Company, R Ltd has imported electronics from foreign supplier. The goods are shipped to India and payment is required to be made to this supplier. What compliances are required by the Indian company?

   Our view: R Ltd does not require to file Form 15CA and Form 15CB as imports/advance payments are included in the list of payments specified in the list not required to furnish details under Rule 37BB of Income Tax Rules.

   6. If Mr. Sunil is remitting Rs. 3,00,000/- from India on account of medical treatment of his wife in Canada on 3rd May, 2020. What compliance is required?

   Our view: No, Mr. Sunil does not require to file Form 15CA as remittance made on account of medical treatment abroad is included in the list of payments specified in the list not required to furnish details under Rule 37BB of Income Tax Rules. Therefore, Mr. Sunil is not required to file Form 15CA /15CB. However, Mr. Sunil is required to furnish the following documents to authorised dealers under Liberalised Remittance Scheme:

   1. a. Form A2
   2. b. Application cum Declaration for purchase of foreign exchange under LRS
   3. c. Copy of PAN card

   7. What is the penalty for failure to furnish information or inaccurate information in Form 15CA/ 15CB?

   Our view: If a person fails to furnish information or provides inaccurate information in Form 15CA/ 15CB, then penalty of Rs. 100,000/- is levied.

    

   At InCorp, our Team provides seamless support with advisory services and assist you in complying with all the applicable laws and framework thereafter. Explore all our tax services and feel free to get in touch with our experts today.

Income tax is levied on the annual income of an individual or an entity. The period under Income Tax Act starts from 1st April and ending on 31st March of the next calendar year. The Income-tax Law classifies the year as (i) Previous year, and (ii) Assessment year.

Income tax on companies is called a corporate tax which is normally levied at a fixed rate. Whilst, a non-corporate assessee other than the firm has to pay income tax based on the slab rate.

Taxes are collected by the Government through three means:

• Voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self-Assessment Tax paid by the taxpayers,
• Taxes deducted at source [TDS] from the income of the receiver,
• Taxes collected at source [TCS].

Every year, Finance Act prescribes the income tax rates and TDS/TCS rates effective for the relevant assessment year to the previous year. Further, CBDT is empowered to issue notification and circulars to clarify and notify the rates and their changes.

According to the current income tax laws in India, we have summarized and tabularized all the income tax rates for FY 2020-21 (AY 2021-22) for your easy reference.

Part 1: Income Tax for FY 2020-21

1. 1. What is to be included for computing total income?

As per Section 5 of the Income Tax Act, 1961 the following income is included in total income:

• • Income received or is deemed to be received in India by or on behalf of such person; or
  • Income accrued or arise or is deemed to accrued or arise in India; or
  • Income accrued or arise outside India during such year.

2. 2. What are the Income-tax rates applicable for FY 2020-21?

As per Finance Act, 2020, following are the income tax rates incomes for FY 2020-21 (AY 2021-22):

I. In case of an Individual or HUF or Association of Person or Body of Individual or any other Artificial Juridical Person (other than senior and super senior citizen): 

II. In case of an individual who is a senior citizen (60 years or more at any time during the previous year):

III. In case of an Individual who is super senior citizen (80 years or more at any time during the previous year):

IV. In case of an Individual or HUF under new regime (only if the total income is computed without claiming specified exemptions or deductions other than mentioned in sub-clauses (a) to (c) of sub-rule (1) and serial no.11 to sub-rule 2 of Rule 2BB*): 

Rebate u/s 87A is available up to 100 percent of income-tax or Rs. 12,500, whichever is less for a resident individuals whose net income does not exceed Rs. 5,00,000.
In the case of (1) to (4), Health and Education Cess is levied at the rate of 4% on the amount of income-tax plus surcharge. 

Surcharge:

V. Partnership Firm or LLP or Local Authority:

VI. Co-operative Society:

VII. Domestic Company: 

VIII. Foreign Company: 

Part 2: Tax Deducted at Source (TDS):

1. 1. What is TDS?

• Tax Deducted at Source concept was introduced in 2004 on the principle of ‘pay as you earn’.
• A person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
• The onus of deducting tax is on payer (who makes the expenditure) instead of actual taxpayer, that is, assessee under Section 192 to 194 of Income Tax Act, 1961.
• Deductor who deducts tax at source is required to furnish a certificate to the respective deductee specifying the amount deducted as tax along with all the other particulars.

2. 2. What are the TDS rates applicable?

Part 3: Tax Collected at Source (TCS):

1. What is TCS?

• The tax collected at source (TCS) is one of the methods of collection of tax by the government. This method follows the principle ‘Collect as it is being earned’.
• TCS is the tax payable by a seller which he collects from the buyer at the time of sale.
• Section 206C of the Income-tax Act governs the goods on which specific sellers have to collect tax from specific buyers.
• Tax collection at source is implemented to curb tax evasion and also to facilitate proper tax collection in India.

2. What are the TCS rates applicable?

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Charity begins at home, and home for some people is not just the family, but their society, their state, their country and the world in which they live. It is said that, the person should not be judged by, what he achieves for himself, but by what he achieves for society at large. In the words of Mr. Azim Premji, who is one of the world’s top philanthropists, “You cannot mandate philanthropy. It has to come from within, and when it does, it is deeply satisfying”. Even though Mr. Azim Premji was not in favor of mandating philanthropy by way of law, we never the less have one under, The Companies Act, 2013. So, we can do philanthropic activities either when we feel like doing it or when we are mandated by law to do it. In this brief note we shall guide you as to how one can move forward for carrying out charitable activities, in the best possible structure.

FAQs

1. Which are the major types of charity?

Charity can be done, either when it is mandated by the law or when one feels like doing it i.e. Suo-moto. Each of the types can be understood as under:

• Charity – Suo Moto – We get a lot of things from society and there comes a time, when we feel that we should take a step forward and do something for the society, i.e. people at large. People with similar interest can come together and be a part of organization and achieve the objective that it sets for oneself.
• Charity – Mandated by Law (Corporate Social Responsibility CSR) – As per provisions of Section 135 of the Companies Act, it prescribes 3 conditions and on satisfying any one of the criteria, company is bound to carry out CSR activities:
  • Company having net worth of rupees five hundred crore or more, or
  • turnover of rupees one thousand crore or more or
  • a net profit of rupees five crore or more during any financial year

  The Board of every company that satisfies any of the above conditions shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

2. What structure can be used for carrying out Charitable Activities?

Whether one decides Suo-moto or is mandated by law to do some charity, he can do so by one of the two ways:

Each of the two options mentioned herein can be understood as under:

CSR ACTIVITIES CONDUCTED THROUGH SECTION 8 COMPANY
Section 8 of the Companies Act 2013, permits a company to register itself as a not- for- profit company with limited liability to its members. Following are the conditions that it must satisfy —

• has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• intends to apply its profits, if any, or other income in promoting its objects;
• intends to prohibit the payment of any dividend to its members

CSR ACTIVITIES THROUGH CHARITABLE TRUST
A trust can be formed by a founder along with other trustees. A trust deed is to be drafted and duly registered with the registrar of trusts. Since, power to regulate trusts are covered in List – III of Seventh Schedule of the constitution of India, state and centre can both enact laws. In the state of Maharashtra, Maharashtra Public Trust Act, 1950 (Formerly known as Bombay Public Trust Act) applies to public trusts.

To form a charitable trust, it is very important that the objects of the trust must be for greater good of public at large. Charitable purpose includes:

• Education
• Medical relief
• Relief of power by or distress
• the advancement of any other object of general public utility

Governance of a trust is the responsibility of the trustees. Legal ownership of trust property vests in the trustees.

3. What is the process of formation of above entities?

INCORPORATION OF SECTION 8 COMPANY

• The Company has to first decide the Charitable Object that it intends to achieve; it can either be one or more.
• The Company has to decide on the Share Capital with which it will start the Company and the subscribers to such share capital.
• The no. of Directors that will be appointed in the said Company.
• Application is required to be filed to Central Government for grant of License.
• Other formalities with respect to incorporation are similar to that of any other company which would be incorporated under Companies Act, 2013.

INCORPORATION OF CHARITABLE TRUST

• Trust Deed is the charter document, through which Trust communicates its objects.
• Identifying the author of the Trust and Trustees who shall run the Trust along with their consent letter.
• Registration with the Charity Commissioner.

4. What are the advantages with respect to the structure mentioned above?

ADVANTAGES OF SECTION 8 COMPANY ARE AS UNDER

• No requirement of minimum paid-up share capital.
• Section 149(1) relates to minimum and maximum number of directors. A minimum of three directors in case of public company and two directors in case of private company. This section shall not apply to section 8 Company.
• No Specific compliance with respect to appointment of Independent Directors.
• It shall hold at least one meeting within every six calendar months.
• The bar on taking up directorship in more than twenty companies has been relaxed in the case of section 8 companies. Therefore, an individual, if he is eligible, can be a director in more than 20 section 8 companies. This restriction however continues to stay for other categories of companies.
• There is also relaxation with respect to Quorum required for conduct of meeting. Wherein minimum of two members are required.

ADVANTAGES OF CHARITABLE TRUST

• Registration of trust as compared to section 8 company requires less time for incorporation and is easier as regards to compliance.
• Trustees has complete control over the trust.
• There is no statutory requirement to hold specified number of meetings.
• Documentation, filing of returns and other statutory compliances in comparison to that of section 8 company are less.

5. How Income Tax Law applies to Structure chosen for carrying out Charitable Activities?

Under Income Tax Act, 1961 there is no difference how trust and section 8 Company is taxed. The taxation of the charitable entity is governed by the chapter III of the income tax which includes section 11, 12, 12A, 12AA/12AB and 13. The Government of India has given various exemptions to charitable and religious trust keeping in view the services they render to the nation. Section 11 deals with taxation of the income from the property held for charitable purposes. As per the said section, if the charitable entity spends more than or equal to 85% of its total receipts towards its object in India, then there is no tax on balance 15%. It is worthwhile to note that, the amount spend even for the fixed asset of the trust is also eligible to include in 85%.

For registering the Trust or Company first time as Charitable Organization under Income Tax Act, application has to be before Commissioner of Income Tax (Exemptions) under Form 10A. Commissioner of Income Tax (Exemption), should be satisfied that objects of the trust are charitable in nature, they are not for personal benefits of trustees or directors, an entity has the vision and the same should be coming out from the report reflecting activities which entity will carry out. It can also apply for Certificate under 80-G, wherein donations made to such entity will be Tax deductible.

The exemption is now granted under the Income Tax Act for a period of 5 Years and the certificate has to be renewed every 5 years, by making an application before Commissioner of Income Tax – (Exemption).

COMPARATIVE ANALYSIS BETWEEN SECTION 8 COMPANY AND CHARITABLE TRUST

How can InCorp help you?

Our team at InCorp can not only help you choose the correct legal structure for carrying out charitable activities, but also assist you in complying with all the applicable laws and framework thereafter. We further ensure that while doing charity, organizations are not stuck in the clutches of various legal hurdles and we make it our responsibility to keep charitable organizations compliant of all laws at all points in time.