As per the High Court ruling in recent times, the DTAA provision can override Section 206AA, which means a Non Resident Indian can claim lower TDS Rates even without a PAN, provided they have a valid Tax Residency Certificate with duly filed Form 10F with the Income Tax Department alongside self-declaration of eligibility under the relevant treaty
A corporate tax dispute over tax deducted at source (TDS) on payments to non-residents without PAN has spanned a deeper debate on how individual investors and freelancers abroad can safeguard their income using Double Taxation Avoidance Agreements (DTAA).
According to media reports, the Gujarat High Court has stated that DTAA will prevail over Section 206AA of the Income Tax Act for TDS on payments to non-residents without PAN.
Understanding The Ruling
“On a literal interpretation of provisions under the Income-tax Act, 1961, such as section 90(2) and 206AA, it can be understood that PAN would not be necessary for claiming DTAA benefits. However, this issue seems to be lingering with litigating views across the judicial forum.
This ruling also finds its relevance from judgements passed by Bombay, Delhi, and Karnataka High Courts,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.
Typically, any taxpayer eligible to claim benefits under a DTAA holds a PAN, to ensure that any non-compliance does not lead to the disallowance of tax credit when filing their tax returns. Thus, the ruling provides relief to the remitter from obtaining PAN from non-residents while relying on the DTAA provisions.
“To claim lower TDS under DTAA, one will mainly require a tax residency certificate and a declaration that the recipient does not have a permanent establishment in India,” says Savani.
“As per High Court ruling in recent times – DTAA provision can override Section 206AA which means a Non Resident Indian can claim lower TDS Rates even without a PAN provided they have a valid Tax Residency Certificate with duly Form 10F filed with Income Tax Department alongside self-declaration of edibility under relevant treaty,” says says Deepak Kumar Jain, founder and CEO, TaxManager.in - the tax advisory and e-filing.
How To Claim Lower TDS Without A PAN
A Non-Resident Indian can claim lower TDS Rates even without a PAN, provided they have a valid Tax Residency Certificate with duly filed Form 10F with the Income Tax Department alongside self-declaration of eligibility under the relevant treaty.
“Retain and maintain copies of all above documents for at least seven years – matching Indian Tax Retention Period,” says Jain.