Amendment in Section 195(6) of the Income tax Act

As you may be aware Section 195 of the Income tax Act (Act) requires the payer to withhold tax while making a remittance to a non-resident, which is chargeable to tax in India, Finance Act, 2008 inserted sub-section (6) to Section 195, which provides that every person, who is required to remit a sum chargeable to tax in India, should furnish the information prescribed by CBDT. As per the Rule 37BB, the information under Section 195(6) of the Act shall be furnished by a person responsible for making payment to a non-resident after obtaining a certificate from an accountant. The said certificate shall be obtained in Form 15CB and information in Form 15CA shall be furnished electronically to the website designated by the Income Tax Department.

There were no implications prescribed under the Act for non-submission of Form 15CA and 15CB.

Section 195(6) before its amendment by the Finance Act 2015 specifically mentioned ‘person referred to in sub-section (1)’ and which sub-section in turn referred to ‘any person responsible for paying for paying to a non-resident ……… any other sum chargeable under the provisions of this Act”.

Therefore, the interpretation was that information required to be provided for under Section 195(6) was only in relation to remittance of a sum, which was chargeable to tax under the provisions of the Act, though out of abundant caution information was being furnished even in respect of sums in respect of which there could be some debate particularly under the head fees for technical services. 

As a result of the amendment made by the Finance Act, 2015 whereby as per Section 195(6) a person responsible for paying any sum to a non-resident, whether chargeable to tax or not, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. 

As per the memorandum explaining the provisions of the Finance Bill, 2015, it is stated that the mechanism of obtaining of information in respect of remittances fulfils twin objectives of ensuring deduction of tax at the appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but was not deducted at source.

By omitting reference to the person referred to in Section 195(1) and by specifically providing for compliance with the provisions of Section 195(6) whether or not the sum being remitted was chargeable to tax, it would appear that the prescribed information under Section 195(6) will have be furnished in case of all remittances, whether or not the sum being remitted was chargeable to tax.

Recently, in a conference organised by Chamber of Tax Consultants and IFA Delhi Chapter on 4 March 2015, the CBDT officials clarified that the reporting required under Section 195(6) is not required in all cases.  Jt. Secretary, Pragya Saxena further clarified that only that ‘information’ which may be ‘prescribed’, would have to be furnished. It is therefore expected that certain clarifications would be issued by the CBDT. Therefore, one needs to wait and watch for more clarification and notification in this regard.

Further, presently there was no provision for levying penalty for non-submission/inaccurate submission of the prescribed information in respect of remittance to the non-resident. For ensuring submission of accurate information in respect of remittance to a non-resident, the Finance Act, 2015 has incorporated a penal provision in Section 271-I whereby a penalty of INR 1,00,000 would be levied for non-furnishing of information or furnishing of incorrect information under Section 195(6) except in the case where it is proved that there was reasonable cause for non-furnishing or incorrect furnishing of such information.

The above amendments will take effect from 1 June 2015.

It is not clear whether this penalty is for each instance of non-compliance.

In view of amendment in law and stringent penalty provision, it would now be incumbent upon the payer to file Form 15CA and 15CB in all cases irrespective of the fact that the remittance to the non-resident is taxable or not unless CBDT clarifies otherwise. 

We request you to kindly take a note of the above while making compliance under Section 195 of the Act.