The remittance of funds abroad from perspective of Income Tax Act, 1961 (“IT Act”) requires a clear understanding of its process flow (right from the applicability of the Act to the procedure in which the funds will be remitted outside India). By way of this presentation, we have tried to simplify the Income Tax provisions for remittance of funds abroad for our readers.

2. Index
The remittance of fundsabroadfrom perspectiveof Income Tax Act,1961 (“IT Act”) requiresaclear understandingof itsprocessflow(rightfromthe applicabilityof the Act
to the procedure inwhichthe fundswill be remittedoutside India).Bywayof thispresentation,we have triedtosimplify the Income Tax provisionsforremittance of funds
abroad forour readers.The presentationisdividedintothe followingsegment:
Sr
No.
Particulars
1 Tax structure in India in case of foreign payments
2 Applicability
A. General Section
B. Specific Section
3 Procedure for remittance of funds abroad

3. Tax Structure in case of Foreign Payments
The taxabilitygloballyisdependentontwoprinciples:
- Residence based tax: Resident based taxationinstructs that, the country can tax persons if they are residents or domiciledin the country, regardless of the source of
income. In the case companies, the place of incorporation or registration of the entity or the place where its place of effective management is located is its place of
residence.
- Source basedtax: In the case of source-basedtaxationprinciple,importance istothe source (country) where income isgenerated.There are individuals/entitieswhose
“residence”isinone countrybut theirbusinessisactuallycarriedoninanothercountry,the income isconsideredtobe earnedinthe countrywhere business iscarried
on.
Whenthe transactionis carried on betweenpersonsof two differentcountries,the taxabilityinany countryis determinedasper provisionsof the domesticlawread with
the Double TaxationAvoidance Agreemententeredintobetweenthe Countries.InIndia, residence-basedtaxationrule isfollowed.
I. Income Tax Act, 1961
As perthe charging provisionof ITAct,the flowfor determiningtaxabilityinhandsof non-residentisasfollows:
Once the residential statusisdetermined,the scope of taxabilityof income isasunder:
Nature of Income Taxability in
hands of non-
resident
Income whichaccruesor arisesinIndia Taxed
Income whichisdeemedtoaccrue or arise in India Taxed
Sec 6 - Determining
Residential Status
Sec 5 - Basedon the
residentialstatus,ascertain
the scope of income
Sec 7,8 & 9 - Determine
whetherthe income
accrues/receives,deemto
accrue/arise/receive

4. Income whichisreceivedinIndia Taxed
Income whichisdeemedtobe receivedinIndia Taxed
Income accruing outside India from a business controlled from
Indiaor froma professionsetup inIndia
NotTaxed
Income otherthanabove (i.e.income whichhasnorelationwith
India)
NotTaxed
II. Double Taxation Avoidance Agreement
As perSection90(2) of the IT Act,the taxabilityincase of non-residentshall be more beneficialof:
- Double TaxationAvoidance AgreemententeredintobyCentral Government& Governmentof the otherCountry,or
- Provisionsof ITAct
The DTAA has variousarticlesgoverningtaxabilityof the Income.Fewarticlesare asfollows:
Article 6 Income from Immovable
Property
Article 11 Interest
Article 7 BusinessProfits Article 12 Royalties and Fees for Technical
Services
Article 8 Shipping, Inland waterways
transportand AirTransport
Article 13 Capital Gains
Article 10 Dividend Article 21 OtherIncome
Considering provisions of both the domestic laws and the DTAA, if the taxability falls under the scope of Indian Laws, the payment to non-resident shall be done after
withholdingtax asperapplicable provisions.

5. III. DTAA vs. the Act
Sec 90 & 90A of the Act authorises Central Government to enter into DTAA withother Countries/ ratifyDTAA betweenother specified associations for granting relief1
in
respectof income onwhichtax ispayable.
The relevantprovisionsunderthe Actandcorresponding ArticlesunderUN Model Conventionare summarisedinthe followingtable –
Nature of Income Underthe Act Underthe DTAA
Business/Profession Sec 9(1)(i) Article 5,7 & 14
Salary Income Sec 9(1)(ii) Article 15
DividendIncome Sec 9(1)(iv),Sec115A Article 10
InterestIncome Sec 9(1)(v),Sec115A Article 11
Royalties/ Fees for Technical
Services
Sec 9(1)(vi),Sec115A Article 12
Capital Gains Sec 9(1)(i),Sec45 Article 13
1 Rule 21AB- Certificate for claiming reliefunder an agreement referred to in sections 90 and 90A –Form 10F or all such information as may be prescribed to be furnished.

7. There are few specific provisions in IT Act governing tax deduction when payments are made outside India. All the payments other than covered under specific provisions
are coveredunderSection195.
Analysis of Section 195(1)
Section195(1) of the Income Tax Act,1961 dealswithpaymentmade toNon-resident(otherthanCompany) andtoa ForeignCompany.The gistof the Sectionis as under:
- Whois responsible todeduct?
a) Anyperson - includingindividuals,HUF,Companies,PartnershipFirm
b) Whetherresidentornon-resident
- Payment to whom?
a) Non-residentandForeignCompanies
b) It doesn'tinclude ResidentbutNotOrdinaryResident
- Nature of payment
a) Interest(excludinginterestunderSection194LB, 194LC and 194LD) or anyothersum chargeable totax
b) Salariesandexemptdividendsare excluded
- What rate to apply
a) Deducttax at the rates inforce (as providedinthe Finance Act)
b) If DTAA available, ratesof income tax specifiedinthe Finance Actorthe ratesspecifiedinthe DTAA,whicheverismore beneficial shallapply.
- Whento deduct
a) The Act: At the time of paymentor creditof income to the account of the payee,whicheverisearlier
(Explanationtothe Sectionprovidesanexceptiontothe Government,PublicSectorBank& PublicFinancial Institution –Deductiononlyonpayment)
b) Tax Treaty:Anyspecificrequirementinthe treaty to deducttax needstobe adheredwithif treatyprovisionsare followed.

8. The examplesof fewratesinforce inIT Act withrespectto foreignincome are aspresentedbelow:
Section Nature of Income Rate of
tax (%)
Section115E Income inrespectof investmentmade byaNon-residentIndian 20
Section115E Income byway of long-termcapital gainsincase of Non-residentIndian 10
Section193 Income byway of long-termcapital gainsreferredtoinsub-clause(iii) of clause (c) of sub-section(1) of Section193 10
Section115A Income of Non-resident (not being a Company) by way of interest payable by Government or an Indian concern on money
borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest
referredtoinSection194LB or Section194LC
20
Section115A Income of Non-resident(notbeingaCompany) bywayof dividendsotherthandividendsreferredtoinsection115-O 20
Section115A income bywayof royaltyor feesfortechnical servicesotherthanincome referredtoinsub-section(1) of section44DA received
from Government or an Indian concern in pursuance of an agreement made by the foreign company withGovernment or the
Indianconcern
10
Section196B Income fromunits(includinglong-termcapital gainontransferof suchunits) toan offshore fund 10
Section196C Income fromforeigncurrencybondsorGDR of anIndiancompany(includinglong-termcapital gainontransferof such bondsor
GDR)
10
Section196D Income of ForeignInstitutional Investorsfromsecurities(notbeingadividendorcapital gainarisingfromsuchsecurities) 20

9. Specific Sections
The Tax Deductionat Source (TDS) is an importanttool of revenue collectionandtherefore more andmore itemsof income are beingaddedtothe alreadysubstantial items
liable to TDS. The objective behind applicationof TDS provision to Non-resident is to save the country from hassles of subsequent recoveries which may at times become
difficultdue togeographical distancesanddifferentlegal jurisdictions.Therefore,the burdeniscaston the “Personresponsible forpaying’tonon-residentstodeducttax on
the sum which is chargeable to tax at the rates, either prescribedunder the Act or appropriate Double Tax Avoidance Agreement (DTAA), which is lower.This method has
provedtobe a veryeffectivetool incollectionof taxesfromthe non-residents.
Few specificsectionswhichgovernsTDSdeductionincase of Non-residentIndiansandCompany(otherthanDomesticCompany) are asfollows:
Section Nature of payment Rate of tax
(%)
Section192 Paymentof Salary Normal Slab
Rate
Section194B Income byway of winningsfromlotteries,crosswordpuzzles,cardgamesandothergamesof any sort 30
Section194BB Income byway of winningsfromhorse races 30
Section194E Paymenttonon-residentsportsmen/sportsassociation 20
Section194EE Paymentinrespectof depositsunderNational SavingsScheme 10
Section194F Paymentonaccount of repurchase of unitby Mutual Fund or UnitTrust of India 20
Section194G Commission,etc.,onsale of lotterytickets 5
Section194LB Paymentof interestoninfrastructure debtfund 5
Section194LBA Certainincome distributedbyabusinesstrusttoitsunitholder 5
Section194LC Paymentof interestbyanIndianCompanyorabusinesstrustinrespectof moneyborrowedinforeigncurrency
undera loanagreementorby wayof issue of long-termbonds(includinglong-terminfrastructure bond)
5
Section194LD Paymentof interestonrupee denominatedbondof anIndianCompanyor GovernmentsecuritiestoaForeign
InstitutionalInvestorora QualifiedForeignInvestor
5

11. A. TAX
A.1. LOWER DEDUCTION CERTIFICATE
A.1.1. Lower Deduction
The lowerdeductionisgovernedbySection195(2),195(3) and Section197. The brief of these sections isasunder:
Particulars Section195(2) Section195(3) Section197
Overview Payerhavingabelief thatportion(notthe whole
amount) of any sums payable by him to non-
residentisnotliable totax inIndia,maymake an
applicationtoAOto determine taxable portion
Payee may make an application to AO for
granting him a certificate to receive income
withoutTDS
Payee maymake anapplicationtoAOforgranting
himcertificate of ‘Nil’or‘lower’withholding.
Applicationby Payer Non-residentPayee Payee
Purpose Determination of portion of such sum
chargeable totax
No withholding Lower/NILwithholding
Form No specificformat Rule 29B – Form 15C & 15D Rule 28 – Form 13
Outcome AO to determine the appropriate proportion
chargeable totax andissue an orderaccordingly
Certificate issuedbythe AOsubjecttoconditions
specifiedinRule29B
Certificate to be issued by AO subject to
conditionsspecified inRule 28AA
Whether
appealable
u/s 248?
Yes – Afterpaymentof tax by the payer No appeal No appeal

12. The procedure forobtainingForm13 has beenmade online byCBDTvide Notificationdated 25th
October,2018.

13. A.2. OTHERS
A.2.1. Amount on which tax has to be deducted:
Personmakingpaymentto a non-residentisliable toTDS irrespective of legal orresidential statusof the payeror liabilitytowithholdTDSunderany otherprovisionsof the
Act.
The CBDT CircularNo.152 dated27th
November,1974 has clarifiedthatwhenitisnotpossible toknoworcompute the exactincomeelement,the deductionhastobe onthe
whole (gross) amount payable unless an order u/s. 195(2) of the IT Act has been obtained from the Income Tax Office making determination of the appropriate portionas
taxable income onwhichtax isdeductible.
A.2.2. Section195A – Grossingup
Inrespectof paymentmade ‘netof tax’ also, the payerisunderlegalobligationtofurnishTDScertificatetothe payee.Further,inrespectof “netof tax”payment,the circular
has clarifiedthatthe income grossedupu/s.195A is deemedtobe income of the payee u/s.198 of the Act. [Circularno. 785 dated24 November1999]
When the resident payer agrees to bear the burden of tax on payments due to the non-resident, the amount paidis consideredas net of tax payment and the payment is
requiredtobe grossedupfor calculationof tax liability. The grossedupamountwill be treatedas the amountagreedtobe paidandtax shall be calculatedatprescribedrate
on the gross amount.
Particulars Amount in
INR
Amount payable to the non-resident(netoftax) 100
Tax rate applicable 20%
Grossed-upincome:100*100/(100-20) 125
Tax payable (INR 125*20%) 25
Netamount paid to the non-resident(INR125-25) 100

14. A.2.3. Section206AA
Requirementtowithholdtax atthe higherof the followingratesif deductee failstoprovide itsPAN tothe deductor:
- Rate specifiedinthe relevantprovisionof the Act(i.e.specifiedratesinChpXVII-B);or
- Withholdingtax rate specifiedinFinanceAct;or
- Rate of20%
As perSection206AA(7),the sectionshall notapplytoa non-resident/foreigncompany,inrespectof:
- Paymentof interestonlong-termbondsreferredtoinSection194LC; and
- Anyotherpaymentsubjecttosuch conditionsasmaybe prescribed
Further, the Section also prescribes that no certificate under section 197 shall be granted unless the application made under that sectioncontains the Permanent Account
Numberof the applicant.
Rule 37BC provides relaxationfromdeductionoftaxathigherrate undersection206AA.Section206AA shall notapply onthe followingpaymentstonon-residentdeductees
whodon’thave PAN in India, subjecttodeductee furnishingthe specified detailsanddocumentstothe deductor:
- Interest;
- Royalty;
- FeesforTechnical Services; and
- Paymentontransferof any capital asset
In respectof the above,the deductee shall be requiredtofurnishthe followingtothe deductor:
(i) name,e-mail id,contactnumber;
(ii) addressinthe country or specifiedterritoryoutside Indiaof whichthe deductee isaresident;
(iii) a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that
countryor specifiedterritoryprovidesforissuance of suchcertificate;
(iv) Tax IdentificationNumberof the deductee inthe countryor specifiedterritoryof his residence andincase no such numberis available,thena unique numberon
the basisof whichthe deductee isidentifiedbythe Governmentof thatcountryor the specifiedterritoryof whichhe claims tobe a resident.]

15. The implicationof the provisionissummarizedinthe followingtable –
PAN Tax Residency
Certificate (TRC)
Does treaty provide for
lowerrate?
Applicable withholding
tax rate
   Treatyrate
   Rate as perIT Act
   Act rate subjecttoSec
206AA
A.2.4. Consequencesofnon-compliance inanyof the provisionsmentionedinthis article

16. B. REMITTANCE OF FUNDSABROAD
B.1. Certificate furnishedbyCharteredAccountant2
The CBDT vide NotificationNo.30/2009 dated25th
March, 2009 issuedIncome-tax (SeventhAmendment) Rules,2009 and prescribedfollowingformatsthroughinsertionof
Rule 37BB –
- Form 15CA – Formatfor furnishingprescribedinformationandverificationbythe payee,
- Form 15CB – Format forcertificate fromCharteredAccountant
These provisionsbecameeffective from1st
July,2009.
The form 15CA & 15CB are bifurcatedintopartsas presentedbelow:
2 Rule 37 BBofthe Income Tax Rules prescribes certain nature ofpayment for which furnishing certificate is not required.

17. Process flow for furnishing CA certificate and remitting funds outside India:
Further, for the purpose of conversion, as per Rule 26 of the Income Tax Rules, the payer needs to ensure that the taxesdeducted at source are converted by applying SBI
TelegraphicTransferBuyingRate.

18. To avoid excess tax or double tax to be paid in India, it is essential to have complete knowledge of provisions of the Act
&
In case the excess payment is made, file ITR and claim refund of such excess amount.