Exemption from obtaining/ furnishing PAN by non-resident

Exemption from obtaining/furnishing PAN by non-resident

Vide notification dated 10th August 2020, the Central Board of Direct Taxes has introduced the Income Tax (19th Amendment) Rules, 2020. The amendment rules inserted new sub-rule (3) to rule 37BC and new rule 114AAB to the Income Tax Rules 1962. The gist of the amendment is that the non-resident earning income only from the investment in a specified fund is not required to obtain Permanent Account Number (i.e. PAN). Further, the non-resident is also not required to furnish PAN to the tax deductor. The amendment is effective from 10th August 2020. The said amendments are briefly explained in the current article.

Category of non-resident exempt from obtaining of PAN

Provisions of section 139A of the Income Tax Act mandates every person earning taxable income in India and other specified persons to obtain PAN. However, the provisions of newly inserted rule 114AAB to the Income Tax Rules 1962 states that the non-resident is not required to obtain PAN if both the below criteria are satisfied-

  1. An exemption is available only to a non-resident (other than a company or a foreign company); and
  2. During the previous year, the non-resident has made an investment in the specified funds.

Conditions to be satisfied for claiming exemption under rule 114AAB

In order to avail the above exemption of not obtaining PAN, the non-resident is required to satisfy various conditions. The said conditions are listed herein below-

  1. During the previous year, the non-resident should be earning an income only from an investment made in the specified funds. Meaning thereby, the non-resident shouldn’t not be earning any other income other than income from the investment made in the specified funds.
  2. TDS should have been duly deducted under section 194LLB and deposited by the specified fund to the Government.
  3. Following details/ documents are to be furnished by the non-resident to the specified fund-
    1. Details of name, e-mail id and contact number.
    2. Details of the address of the country/ specified territory where he is resident.
    3. A declaration stating that he is resident of a country/ specified territory outside India.
    4. Tax Identification Number or Unique Number in the country/ specified territory of his residence.
  4. Compliance to be done by the specified fund-
    1. Furnish a quarterly statement in Form 49BA. The statement is to be furnished for the quarter during which the details/ documents are received from the non-resident. The statement is to be filed within 15 days from the end of the relevant quarter. Form 49BA is to be furnished either to the Principal Director General of Income Tax (System) or the Director-General of the Income Tax (System) or his authorized person; and
    2. Upload the declaration received from the non-resident.

Category of non-resident exempted from the furnishing of PAN

As per section 206AA of the Income Tax Act, in case of non-furnishing of PAN, the deductor would be liable to deduct TDS at a higher rate of 20% (in some case 5%).

However, the newly inserted sub-rule (3) to rule 37BC of the Income Tax Rules exempts the non-resident, who is covered under rule 114AAB, from the necessity of furnishing of PAN to the deductor.

Synopsis of the amendment-

A non-resident (other than a company or a foreign company) deriving income only from the investment in specified funds are eligible for the following exemptions-

Rule via which the exemption is available Relevant exemption
Rule 114AAB An eligible non-resident is exempted from obtaining Permanent Account Number (PAN)
Rule 37BC (3) An eligible non-resident is exempted from the requirement of furnishing of PAN to the tax deductor

 

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.