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August 23, 2022

CA community request CBDT MANDATORY E-FILING OF FORM 10F – NEEDS RECONSIDERATION

by CA Shivam Jaiswal in Income Tax Circular Notification

CA community request CBDT MANDATORY E-FILING OF FORM 10F – NEEDS RECONSIDERATION

August 20, 2022

To,
The Chairman,
Central Board of Direct Taxes (CBDT)
Ministry of Finance, Govt. of India
New Delhi.

Respected Sir,

SUB: MANDATORY E-FILING OF FORM 10F – NEEDS RECONSIDERATION

We wish to draw your kind attention to the difficulties faced by the non-residents in claiming the
benefits of the tax treaty as well as to the resident taxpayers while undertaking foreign
remittances arising from the recent Notification No. 03/2022 dated 16th July 2022 requiring
mandatory furnishing of Form 10F (among other forms) electronically. It is humbly prayed to do
away with the mandatory electronic mode of furnishing the said form.

Background

The Finance Act, 2012 inserted section 90(4) of the Income Tax Act, 1961 (‘the Act’) to provide
that a non-resident shall not be entitled to the benefit of a Double Taxation Avoidance Agreement
(‘DTAA’) unless such non-resident obtains a Tax Residency Certificate (‘TRC’) from the
Government of the country of which he is a resident. Further, section 90(5) of the Act, inserted
vide Finance Act, 2013, along with Rule 21AB of the Income Tax Rules, 1962 (‘the Rules’) provides
for furnishing a self-declaration in Form 10F (“the form”) in case the TRC, obtained from the
Government of a particular country, does not contain certain details.

While the TRC obtained from tax authorities generally contains most of the information as
required under Rule 21AB (1) of the Rules, Form 10F is furnished by the non-resident taxpayer
for the balance information or as a matter of precaution. The form is signed physically by the
non-resident taxpayer and furnished along with the TRC to the resident payers for the purpose
of determining the withholding tax implications under section 195 of the Act or to the tax
authorities during scrutiny proceedings if required.

Notification No. 03/2022 dated 16th July 2022 issued by the Director General of Income-tax
(Systems), with the approval of the CBDT, mandates that certain forms, including Form 10F, shall
be furnished electronically in the manner prescribed under Rule 131(1) of the Rules.

Prior to the above-mentioned notification, it is important to note that there was no specified mode
of furnishing the form along with the TRC to obtain the benefits of a Double Tax Avoidance
Agreement (DTAA). However, post this Notification, it shall now be mandatory to furnish this
Form 10F electronically.

Issues faced due by the taxpayers due to the Notification

  1. If one wishes to file Form 10F electronically, as mandated by the Notification, one is
    required to create a login id and password on the Income-tax portal, for which obtaining
    a Permanent Account Number (‘PAN’) is mandatory. In other words, the portal does not
    allow a taxpayer who does not have a PAN to file Form 10F.The Notification, therefore, indirectly mandates all non-resident taxpayers, who wish to claim the benefits of the DTAA, to obtain a PAN in India.

2. This requirement creates a hurdle for non-resident payees and resident payers, as in certain cases, a non-resident payee is not required to obtain PAN under the Act. Section 206AA of the Act, which prescribes a higher rate of tax for taxpayers who do not have PAN, provides an exception to a non-resident, not being a company, or to a foreign company, from obtaining PAN in the following situations:

● in case of interest on long-term bonds referred to in section 194LC of the Act; or
● in case documents as prescribed under Rule 37BC of the Rules, are furnished.

  1. Section 90 of the Act allows a non-resident payee to claim the benefits of a DTAA if such
    provisions are more beneficial than those under the Act. There are various situations
    wherein the benefit of DTAA is availed by a non-resident payee (with the furnishing of the
    documents such as TRC and Form 10F).

4. Mandating a non-resident payee to obtain a PAN in India creates an unnecessary compliance burden, especially in situations where, after tax deduction at source under section 195 by the resident payer, there is no further compliance required to be undertaken by the such payee.

5. Electronic filing of Form 10F requires one to submit the TRC online too. This creates an
increased burden in the following cases:

  • Where TRC would not be available at the time of earning the income, but only later on
    in the tax year, but such TRC would cover the period when the income is earned by the
    Non-resident
  • Where Rule 37BC (2) of the Rules requires the TRC to be submitted only if the law of that country or specified territory provides for the issuance of such certificate

6. Further, there are various situations wherein, due to the benefit claimed under the DTAA, no tax is payable by the non-resident payee or deductible by the resident payer. With the increasing scope of income deemed to accrue or arise in India due to the enactment of the Significant Economic Presence (‘SEP’) provisions, the number of instances wherein no tax is payable by the non-resident payee due to the benefit under the DTAA, have significantly increased.

  1. Further, as per Section 90(4) and Section 90(5), the TRC and Form 10F would be required
    in instances other than remittances too, for example, when a non-resident files a tax
    return claiming treaty benefit. However, as per Circular No. 6/2008 dated 18th July 2008,
    no documents are required to be furnished along with the tax return form. Further, the
    CBDT has mandated submitting all documents only when called for by the tax officer
    during assessment proceedings. With the subject notification, it is not clear to nonresidents
    whether Form 10F is required to be filed along with the tax return or later when
    called for by the tax officer.
  1. Moreover, Rule 131 of the Rules, which deals with the procedure for electronic furnishing
    of the forms, also requires the forms to be signed either through a Digital Signature
    Certificate or through the EVC method prescribed. Therefore, now, along with the nonresident
    payee having to obtain PAN in India, if such payee is a person other than an
    individual, the partner or director or authorised signatory of such payee, who may also be
    a non-resident having no income from India, would also be required to obtain a DSC in
    India.

This poses practical challenges for the non-resident payees as well as resident payers, who are
required to ensure all relevant documents are furnished by the payee while complying with the
TDS provisions under section 195 of the Act.

Such unnecessary compliance requirements are also against the motto of the Government of ‘Ease of Doing Business in India’.

Form 10F only requires basic information of the taxpayer and the TRC, such as the legal status,
address, country of incorporation/birth, PAN (if applicable), unique tax identification number in
the country of residence and the period for which the TRC is applicable. It is humbly submitted
that if the above requirement has been mandated with the need to obtain such data, such data
is freely available in today’s age of exchange of information amongst the tax authorities. If the
need to obtain such data is not the reason for the notification, it is once again humbly submitted
that obtaining a PAN in India creates an unnecessary compliance burden, especially in scenarios
where the Act does not require the non-resident taxpayer to undertake any further compliance.

Prayer
Thus, it is humbly prayed to:
a. Do away with the mandatory electronic furnishing of Form 10F – at least for those who do not have PAN.
b. Alternatively, it is prayed to of such form can be undertaken electronically without creating a PAN-based login id on the Income tax portal – and ideally by a resident payer instead of the non-resident payee.

c. Clarify that electronic filing of Form 10F is required only for remittances to nonresidents
and not for claiming relief during the filing of tax returns by the nonresidents.

We trust that the CBDT will act swiftly in the matter and provide much needed relief
and clarity to the concerned assessees.

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