Finance Bill 2015: Information relating to payment to non-resident and foreign companies- proposed sub-section (6) of S. 195- some lacunae, suggestions and requests. CA Dev Kumar Kothari

[CA DEV KUMAR KOTHARI]

Sub-section (6) of S. 195  is proposed to be substituted by the FB 2015. The existing sub-section and proposed sub-section both are to impose obligation and responsibility to furnish information relating to payments to non-resident and foreign companies. Other obligations are covered by other provisions of section 195 and other related provisions.

The said sub-section was inserted by the Finance Act, 2008, w.e.f. 1-4-2008 the existing sub-section and proposed sub-section are reproduced below with highlights and  remarks are given in third column.

Existing sub-section (6) of S. 195	Proposed sub-section (6) of S. 195	Remarks
16[(6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board]	“(6) 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 proposal any payment will be covered and not necessarily where withholding tax is required to be paid/ deducted. As per proposal person must be responsible to pay, and not necessary that the payment is an income chargeable to tax in India. Thus, any voluntary payment (e.g. gift, or share application money), where there is no responsibility for making such payment,  may not be covered. The scope is for any sum, provided there is responsibility to pay.  Therefore, under contract or decree liability may arise and there may be responsibility to pay.

In case it is intended to cover all payments, including voluntary payments that is where there is no responsibility, then proposed sub-section must be rectified suitably.

It is desirable that certain payments, for which there is check and balances under FEMA and RBI guidelines to foreign exchange dealers, and expenses in nature of personal expenses like for studies of children abroad, medical expenses of relatives and friends, etc. must be exempted from the reporting requirements.

Exemption for certain monetary limit should also be fixed.

The reporting should be with aim of control major remittances and not all petty remittances, particularly when there are adequate check and balances and also reporting by other agencies about foreign exchange remittances.

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Amendment of section 195.

48. In section 195 of the Income-tax Act, for sub-section (6), the following sub-section shall be substituted with effect from the 1st day of June, 2015, namely:-

“(6) 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.”

Notes on Clauses:

Clause 48 of the Bill seeks to amend section 195 of the Income tax Act relating to other sums.

The existing provisions contained in sub-section (6) of the aforesaid section provide that the person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.

It is proposed to substitute sub-section (6) of the aforesaid section so as to provide that 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.

This amendment will take effect from 1st June, 2015.