Clarification Required - Timing of TRC, Form 10F, No PE Declaration and Form 15CA/15CB for TDS on Non-Resident Payments

[Lalitha Krishnamurthy]

We seek clarification regarding the requirement and timing of obtaining tax documents from a foreign vendor while making payment for services and issuing Form 15CA/15CB.

In our understanding, under Section 195 of the Income Tax Act, TDS on payments to non-residents is required to be deducted at the time of credit or payment, whichever is earlier. If the non-resident is eligible for DTAA benefits, a lower TDS rate may be applied upon receipt of the following documents:

Tax Residency Certificate (TRC)

Form 10F

No Permanent Establishment (No PE) Declaration

Our query concerns the stage at which these documents must be obtained - whether at the time of booking the expense (credit), at the time of payment and issuance of Form 15CA/15CB, or both.

Illustration:

A foreign vendor issued an invoice in FY 2023-24. At that time, TRC, Form 10F, and No PE Declaration were provided. Based on these documents, DTAA benefit was applied and TDS was deducted at the concessional rate at the time of booking the expense (credit) in FY 2023-24. The TDS was deposited and the return filed accordingly.

However, actual payment is being made in FY 2025-26. In FY 2025-26, the vendor has not provided updated TRC, Form 10F, or No PE Declaration.

Our specific questions are:

1. Are fresh tax documents required at the time of payment in FY 2025-26, even though TDS was already deducted at the time of credit in FY 2023-24?

2. If updated documents are not provided, is additional TDS required at domestic rates?

3. Does the TDS rate change at the time of payment?

4. Is revision of the earlier TDS return required?

5. Are TRC, Form 10F, and No PE declarations financial year-specific and required separately for each year of payment and Form 15CA/15CB issuance?

We request your detailed clarification on the above to ensure proper compliance and avoid any future tax exposure, interest, or disallowance.

Looking forward to your guidance.

[YAGAY andSUN]

Under Section 195, TDS liability on payment to a non-resident arises at the earlier of credit or payment. Once tax has been correctly deducted at the time of credit in FY 2023-24, deposited, and reported, there is generally no fresh withholding obligation at the time of actual remittance in FY 2025-26 on the same amount.

TRC, Form 10F, and No PE Declaration are relevant for availing DTAA benefit at the time of determining the applicable withholding rate under Section 195 read with Section 90(4). These documents are financial year-specific in nature and ideally should pertain to the year in which income is taxable and TDS is deducted.

In the present case, if valid documents for FY 2023-24 were obtained and relied upon while deducting TDS at concessional DTAA rates, the withholding position for that income generally stands concluded. Mere remittance in FY 2025-26 should not trigger additional TDS merely because updated documents are unavailable, provided no further income accrues and payment pertains to the same liability already subjected to TDS.

Accordingly:

1. Fresh TRC / Form 10F / No PE Declaration is ordinarily not required for re-deduction of TDS where tax was already correctly withheld at the time of credit.
2. Non-availability of updated documents in FY 2025-26 should not require deduction of differential TDS at domestic rates, if no fresh income accrual arises.
3. TDS rate does not change at the time of payment once valid deduction has already occurred under Section 195 at the earlier event.
4. Revision of earlier TDS return is not required unless the original withholding itself was incorrect or unsupported.

However, for procedural purposes and smoother issuance of Form 15CA/15CB during remittance, banks/authorized dealers and Chartered Accountants may practically insist on updated TRC, Form 10F, and No PE declarations for FY 2025-26. This is generally a compliance/documentation requirement and not necessarily a fresh charging or withholding trigger under the Act.

Hence, from a litigation-risk and FEMA remittance documentation perspective, obtaining updated documents at the time of remittance is advisable, though technically the tax withholding obligation was already discharged in FY 2023-24.

Also discuss this matter with your Income Tax Consultant for more clarity on this issue.

AI Summary

Withholding tax on non-resident payments turns on credit or payment timing, with DTAA documents guiding the applicable rate. Withholding tax on payment to a non-resident arises at the earlier of credit or payment under section 195. Where tax was correctly deducted, deposited, and reported at the time of credit using valid DTAA supporting documents, the withholding obligation for that income is generally treated as concluded, and subsequent remittance of the same amount does not ordinarily trigger fresh deduction merely because updated documents are not available. Tax Residency Certificate, Form 10F, and No Permanent Establishment declaration are relevant to establish DTAA benefit and the applicable withholding rate, and they are ordinarily expected to relate to the relevant financial year in which income is taxed and TDS is deducted.