Any payment made by any person to non-resident which is chargeable to tax in India will be liable to tax deduction u/s 195 of the Income tax act except those covered under section 194LB or section 194LC or section 194LD or income chargeable under the head “Salaries”.
Thus, as per section 195, each and every payment made to non resident whether for personal purpose or business purpose is liable to TDS if the same is liable to tax in India.
However, there were provision under section 195(2) and 195(7) whereby the person making the payment could apply to Assessing officer if he is of the belief that such payment is not fully liable to tax and get a certificate from Assessing officer. Relevant extract of the section is as under:
“(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.”
Thus, under section 195 earlier there was no prescribed format or form for making application to assessing officer and majorly the non resident would have to make application to his assessing officer for lower deduction of tax under section 197.
However, the payer will have an option to make application to his assessing officer to find taxability of payment being made to non resident and Form 15E has been notified for the same.
Thus, new Form 15E notified which is application by a person for Certificate u/s 195(2) and 195(7) of Income-tax Act from the Assessing Officer applicable w.e.f 01/04/2021, to determine the appropriate proportion of sum chargeable under the Act and amount of tax to be withheld (TDS to be done), if any, where the person responsible for paying any sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient.
In the above prescribed Form the payer will have to provide his information, information of the recipient i.e. name, address, TIN number etc, details of transaction i.e. country to which payment made, amount of payment, nature of remittance, details of relief claimed under DTAA if any.
In short this will be a pre assessment of the payment being made to non resident.
It is a very descriptive Form and can be considered as an extended version of Form 15CA. It is a 7-8 page Form.
The above Form needs to be filed electronically on e filing website by the person making payment to non resident under digital signature or through Electronic verification code.
The certificate shall be valid only for the payment to non-resident named therein and for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.
An application for a fresh certificate may be made, if the assessee so desires, after the expiry of the period of validity of the earlier certificate or within three months before the expiry thereof.
To read full notification CLICK HERE.