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Section 206AA is a non-obstante clause which provides the consequence of non-availability PAN. Sub section (1) of the section provides that where the PAN of payee including non-residents and foreign companies are not furnished or not available then the payer is liable to deduct tax at source at highest rate. Sub section (7) of the section provides that where the PAN of the non-resident or a foreign company is not available then the provisions of this section shall not apply in case of certain payments viz (i) payment of interest on long-term bonds as referred to in section 194LC; and (ii) any other payment subject to conditions as prescribed under rule 37BC of the Income Tax Rules, 1962.
The following payments to non-residents or foreign company are subject to the conditions as specified under rule 37BC;
- Interest
- Royalty and fees for technical services and
- payments on transfer of any capital asset
Alternatively we can say that in respect of following payments if the PAN of the non-resident or foreign company is not available, then the payer is liable to deduct TDS at higher rates and benefit of DTAA will not be available:-
- Salaries
- Dividend
- Business Profits
- Shipping and Air Transport
- Independent professional services
- Winning from lotteries etc.,
- Any other income
Further, the conditions mentioned the rule 37BC are as under:-
Deductee furnishes the following details and the documents to the deductor.
(i) name, e-mail id, contact number;
(ii) address in the country or specified territory outside India of which the deductee is a resident;
(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 country or specified territory provides for issuance of such certificate;
(iv) Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or the specified territory of which he claims to be a resident.
Rates for deduction of Tax for Non-resident other than foreign Company u/s 206AA
| Where the person is not resident in India*- | Higher of 20% or rates in DTAA or rates mentioned below |
| Section 192: Payment of Salary | Normal Slab Rate |
| Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee. | 10 |
| Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort | 30 |
| Section 194BB: Income by way of winnings from horse races | 30 |
| Section 194E: Payment to non-resident sportsmen/sports association | 20 |
| Section 194EE: Payment in respect of deposits under National Savings Scheme | 10 |
| Section 194F:Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India | 20 |
| Section 194G: Commission, etc., on sale of lottery tickets | 5 |
| Section 194LB: Payment of interest on infrastructure debt fund | 5 |
| Section 194LBA(2): Business trust shall deduct tax while distributing any interest income received or receivable by it from a SPV to its unit holders. | 5 |
| Section 194LBA(3): Business trust shall deduct tax while distributing any income received from renting or leasing or letting out any real estate asset owned directly by it to its unit holders. | 30 |
| Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]. | 30 |
| Section 194LBC: Income in respect of investment made in a securitisation trust (specified in Explanation of section115TCA) | 30 |
| Section 194LC: Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond) | 5 |
| Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020. | |
| Section 194LD: Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor | 5 |
| Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020. | |
| Section 195: Payment of any other sum to a Non-resident | |
| a) Income in respect of investment made by a Non-resident Indian Citizen | 20 |
| b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen | 10 |
| c) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112 | 10 |
| d) Income by way of long-term capital gains as referred to in Section 112A | 10 |
| e) Income by way of short-term capital gains referred to in Section 111A | 15 |
| f) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A | 20 |
| g) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) | 20 |
| h) Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India | 10 |
| i) Income by way of royalty [not being royalty of the nature referred to point g) above E] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy | 10 |
| j) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy | 10 |
| k) Any other income | 30 |
| Section 196B: Income from units (including long-term capital gain on transfer of such units) to an offshore fund | 10 |
| Section 196C: Income from foreign currency bonds or GDR of an Indian company (including long-term capital gain on transfer of such bonds or GDR) | 10 |
| Section 196D: Income of foreign Institutional Investors from securities (not being dividend or capital gain arising from such securities) | 20 |
Rates for deduction of Tax for foreign Company u/s 206AA
| 2.2 where the company is not a domestic company*- | Higher of 20% or rates in DTAA or rates mentioned below |
| Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort | 30 |
| Section 194BB: Income by way of winnings from horse races | 30 |
| Section 194E: Payment to non-resident sports association | 20 |
| Section 194G: Commission, etc., on sale of lottery tickets | 5 |
| Section 194LB: Payment of interest on infrastructure debt fund | 5 |
| Section 194LBA(2): Business trust shall deduct tax while distributing any interest income received or receivable by it from a SPV to its unit holders. | 5 |
| Section 194LBA(3): Business trust shall deduct tax while distributing any income received from renting or leasing or letting out any real estate asset owned directly by it to its unit holders. | 40 |
| Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]. | 40 |
| Section 194LBC: Income in respect of investment made in a securitisation trust (specified in Explanation of section115TCA) | 40 |
| Section 194LC: Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond) | 5 |
| Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020. | |
| Section 194LD:Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor | 5 |
| Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020. | |
| Section 195: Payment of any other sum | |
| a) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of Section 112 | 10 |
| b) Income by way of long-term capital gains as referred to in Section 112A | 10 |
| c) Income by way of short-term capital gains referred to in Section 111A | 15 |
| d) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A | 20 |
| e) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) | 20 |
| f) Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of March, 1976 where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India | 10 |
| g) Income by way of royalty [not being royalty of the nature referred to in point e) above C] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy— | |
| A. where the agreement is made after the 31st day of March, 1961 but before the 1st day of April, 1976 | 50 |
| B. where the agreement is made after the 31st day of March, 1976 | 10 |
| h) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy— | |
| A. where the agreement is made after the 29th day of February, 1964 but before the 1st day of April, 1976 | 50 |
| B. where the agreement is made after the 31st day of March, 1976 | 10 |
| i) Any other income | 40 |
| Section 196B: Income from units (including long-term capital gain on transfer of such units) to an offshore fund | 10 |
| Section 196C: Income from foreign currency bonds or GDR of an Indian company (including long-term capital gain on transfer of such bonds or GDR) | 10 |
| Section 196D: Income of foreign Institutional Investors from securities (not being dividend or capital gain arising from such securities) | 20 |
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