New Remittance Rule for Foreign Companies Introduced

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Jan. 26 – Indian tax authorities have introduced new rules that require foreign remittances to be reported before payment.

Every recipient of income is now required to provide a Permanent Account Number (PAN) or tax registration number to the payer beginning April 1, 2010. Should the recipient fail to provide a PAN, the withholding tax rate, if applicable, would be higher at the following rates:

-rate specified in the relevant section depending on the nature of payment;

-rates in force (rate specified in the ITA or under the tax treaty);

-rate of 20 percent;

Authorities will not consider an application from the recipient for a lower withholding tax rate if no PAN is provided. This is despite the fact that a lower rate is provided under the ITA or the tax treaty, tax will be required to be withheld at 20 percent in India.

According to the Finance (No.2) Bill, 2009, the PAN must be present in all correspondence, bills, vouchers and other documents between the recipient and payer. A foreign company with no PAN at the time of receipt of income will need to apply for PAN soon after and file return of income in India to be able to claim excess tax refund.

Foreign companies doing business in the country are then advised to begin applying for a PAN. Moreover, business transactions wherein the tax is to be paid by the Indian company with unrelated foreign companies will also need  contracts that indicate that foreign companies would soon apply for a PAN.

For assistance in applying for PAN and other tax issues in India email mumbai@dezshira.com.