Payments to Non residents compliance

Ever felt overwhelmed while making an international payment? With so many tax laws, compliance requirements, and documentation checks, it's easy to miss something—leading to penalties, disallowances, or even regulatory trouble. Here’s a quick checklist to determine whether a payment to a non-resident is taxable in India. 1. Where Does the Income Arise? (The “Source Rule” – Section 9 of the Income-tax Act, 1961) If the income is earned or deemed to be earned in India, it’s taxable here! Common taxable payments under Section 9: - Interest, Royalties and Fees for Technical Services - Business income if the non-resident has a Permanent Establishment (PE) in India under Section 9(1)(i). If the service was performed entirely outside India with no connection to India, it might not be taxable! But always double-check. 2. Does DTAA (Double Taxation Avoidance Agreement) Help? - Check if India has a tax treaty with the recipient’s country. - If applicable, the tax rate under DTAA or as per Income Tax Act whichever is beneficial can be availed. (as per Section 90 & 90A). - To claim DTAA benefits, the non-resident must provide a Tax Residency Certificate (TRC) and Form 10F (per Rule 21AB). 3. What’s the TDS (Withholding Tax) Impact? (Section 195 of Income-tax Act) - If the payment is taxable in India, you must deduct TDS either under Section 195 or as per applicable DTAA before remitting it. 4. Before making the payment: - File Form 15CA (mandatory for most foreign remittances). - Obtain Form 15CB (CA certificate required if amount exceeds Rs. 5 Lakhs). 5 Is GST Applicable on This Foreign Payment? Did you know some foreign payments attract GST in India under the Reverse Charge Mechanism (RCM)? When does GST apply? - If the recipient of the service is in India and the provider is a non-resident, the place of supply is in India (per GST Section 13 of IGST Act). - The recipient is required to pay GST under RCM at 18% 6. What About Equalization Levy? ( Section 165 & 165A of Finance Act, 2016) If you’re paying for digital services from a non-resident, Equalization Levy may apply! 🔹 Digital Advertising – 6% levy applies 🔹 E-Commerce Operators – 2% ( Not applicable from 01-08-2024.) ✅ 6. FEMA & RBI Compliance Before making the payment, check: - Does this require RBI approval under Liberalized Remittance Scheme (LRS)? - Is this under the Automatic Route or Approval Route? - Complete the documentation as required by AD Bank