Is No Objection Certificate Required From IT Department Before Remiting Payments to Non Residents?

March 16, 2008 by taxworry · Leave a Comment

We are in process of constructing a hotel in Gurgaon. to provide Civil, Architect, Horticulture Consultancy we appoint a firm from Singapore to advice to construct the hotel. now we want to make some advance to him. now bank is asking for certificate from CA.
1. TDS u/s 195 will apply or not?
2. What will be TDS Rate ?
3. For all such remittance we need CA certificate ?
4. What is the basis on which we have not to deduct TDS.
Aishwarya Goyal, Gurgaon

Since the non resident company is giving you consultancy to be used in constructing hotel , it is definitely liable to tax at source in India. The rate is 10 % as per Double Taxation Avoidance Agreement between India and Singapore. Article 12 of the DTAA between two countries states

Article 12 : Royalties and fees for technical services – 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.

Whether certificate from C.A required for remittance?

Yes, the remittance to non resident concern is permitted by RBI only when you submit to the

bank two documents

1. A certificate from a chartered accountant
2. An undertaking by the remitter in prescribed format.

CBDT issued circular no 10 of 2002 wherein the prescribed formats of the accountant’s certificate (read C.A) and the the undertaking are given . The circular is as under

Circular No. 759 dated 18-11-1997 was issued by the Central Board of Direct Taxes to dispense with the requirement of a No Objection Certificate from income-tax authorities for remittance to a non-resident as required by the Reserve Bank of India. By the aforesaid circular, remittances were allowed to be made by the RBI without insisting upon a No Objection Certificate from the Department provided the person making the remittance furnished an undertaking in duplicate accompanied by a certificate from an accountant. The format of the application and the certificate has been circulated to the authorised dealers by the Reserve Bank of India through their Circular No. AD (MA Series) Circular No. 48 dated 29-11-1997.
2. However, it has recently been observed that often the certificates have been issued prescribing nil deduction of tax at source in certain cases where tax was liable to be deducted or prescribing deduction of tax at a lower rate than was payable on the basis of the provisions of the Act and the applicable DTAC. The certificate does not provide for necessary details or the reasons for adopting a certain rate for deduction of tax. This results in unnecessary calling of information from the assessees at a later stage and thus gives rise to an avoidable perception of grievance on the part of the tax payer. Therefore, in order to streamline the procedure as well as to ensure the correct deduction of tax at source, the proforma of the undertaking to be given by the remitter and the certificate to be issued by a chartered accountant have been re-considered and new formats are being prescribed which are enclosed as Annexures A and B to this circular. The revised proforma for undertaking as well as the certificate shall to apply in terms of Circular No. 759, dated 18-11-1997 of CBDT. Other requirements of the Circular remain unchanged. It is reiterated that the persons making the remittances shall submit the undertaking and certificate as per Annexures A and B to the Reserve Bank of India/authorised dealer banks, who shall in turn forward the same to the Assessing Officer mentioned in the undertaking.

3. The Reserve Bank of India is being requested to circulate the amended format of the undertaking and the certificate to their authorised dealers.

4. This circular comes into effect with immediate effect.

The forms ?

Click here to get the forms required as per CBDT circular no 10 of 2002 .

Therefore, now you do not need no objection certificate from I T authorities , but those tow documents have to be submitted to the authorised dealer who in turn will send one copy to the A.O concerned.

Who should sign the Undertaking?
The undertaking given by the remitter has to be signed by the person authorised to sign return of income of the concern or a person authorised by such person.

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