Compliance under Sec.195(6) of the Income Tax Act, 1961 and Rule 37BB of the Income Tax Rules, 1962 AMFI BUDGET PROPOSALS 2018-19

AMFI-  Association of Mutual Funds in India

BUDGET PROPOSALS FOR FY 2018-19

Compliance under Sec.195(6) of the Income Tax Act, 1961 and Rule 37BB of the Income Tax Rules, 1962

Background

As per Section 195(6), a person responsible for paying any sum to a non-resident individual is required to furnish information in Form 15 CA and 15CB (prescribed under Rule 37BB).

•                      • As per section 195(6) of the Income Tax Act, 1961 (“the Act”) :

“The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed”

•                      • As per Sec. 271-I of the Act which has come into effect from 01-06-2015,

“If a person, who is required to furnish information under sub-section (6) of section 195, fails to furnish such information; or furnishes inaccurate information, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one lakh rupees.”

(Prior to the amendment by the Finance Act, 2015 section 195(1) of the Act required an Indian payer making payment to non-resident or foreign company to furnish the prescribed details in Form Nos. 15CA and 15CB only in respect of sum chargeable to tax under the provisions of the Act. Finance Act, 2015 has amended the provision of section 195(6) of the Act w.e.f. June 1, 2015).

Rule 37BB of the Income Tax Rules, 1962 (“the Rules”) provides that any person responsible for paying to non-resident, not being a company, or to a foreign company, any sum chargeable to tax under the provisions of the Act shall furnish information in Form Nos. 15CA and 15CB. Further, Form Nos. 15CA and 15CB also indicate the information required to be furnished only in respect to payments which are chargeable to tax.

                        a. The amended provisions are applicable to all payments made to NRIs, whether taxable or not;

                        b. Mode of reporting is filing of Forms 15CA and Form 15CB certified by a CA ;

                        c. Frequency of reporting is prior to or immediately upon payment or accrual in the books of the mutual fund; and

                        d. Failure to furnish such information or furnishing inaccurate information attracts penalty one lakh rupees.

                         

Proposal

It is proposed that:

Payments made by mutual funds which are not chargeable to tax under the provisions of Income Tax Act be included in the Specified List under Rule 37BB (3) (ii); and

Mutual Funds/AMCs be permitted to submit the requisite information under section 195(6) of the Income Tax Act, 1961 in respect of payments made to NR investors which is chargeable under the provisions of the Income Tax Act on an annual basis along with the Annual Information Report.

Justification

Submission of the prescribed Form Nos. 15CA and 15CB on a daily basis is operationally impractical. There is no foreign remittance involved in respect of dividend/ redemption payments, as the same is credited to their NRE or NRO bank accounts in India and not remitted overseas. Thus, the banks would be eventually filing the Form 15 CA/ 15 CB, in case the amounts credited to NRE bank accounts is repatriated overseas.

Further, Dividend from Mutual fund units is completely tax free in the hands of the investors.

The Annual Information Report (AIR) of Mutual Funds/AMCs submitted to the Income Tax Department contains the details of all mutual fund transactions of Rs.2 lakh and above, in respect of all customers, including NRI clients.

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