Mandatory E-Filing of Form 10F – A Challenge for Non-Resident Assessees

The Central Board of Direct Taxes issued a notification on 16^thJuly, 2022 mandating the electronic filing of certain forms, returns, statements, reports, and orders under the Income-tax Act with immediate effect. One of such forms listed in the notification was Form 10F. This step of the Government of mandating e-filing of Form 10F has led to certain practical difficulties on the part of non-resident taxpayers. In this article, we will throw light upon these hardships and understand the procedure of filing the Form electronically.

But before diving into the discussion of the same, let us first understand what Form 10F of Income tax Act is and why it is required to be furnished in the following portion:

Form 10F

Form 10F is required to be filed by a non-resident taxpayer with the Income-tax department of India under section 90 and section 90A of the Income-tax Act, 1961, in order to claim relief under the applicable Double Taxation Avoidance Agreement.

Here, it becomes worthwhile to understand the provisions of section 90 and section 90A of the Act. The same have been described as follows:

Relief under Sections 90 and 90A

Relief under these sections may be claimed by an assessee only if India has entered a DTAA (commonly referred to as a tax treaty also) with the other country or specified association in the specified territory outside India from where such assessee has earned income or he is a resident of. If the Indian Government has a DTAA with any country, then tax relief can be availed under section 90, and if the agreement is with the specified associations, then the relief can be claimed u/s 90A.

As per Section 90 and Section 90A, the Central Government may enter such DTAAs with the Government of any country or any specified association outside India:

a) for providing relief in respect of the income on which tax has been paid both under the Income-tax Act of India and tax law prevailing in such other country or specified territory outside India, or 

b) for granting relief in respect of income-tax chargeable under the Income-tax Act and the corresponding law prevailing in such other country or specified territory to promote trade, investment and mutual economic relations, or 

c) for avoiding double taxation of income under the Income-tax Act and the corresponding law prevailing in such other country or specified territory, or 

d) for exchange of information:

     (1) to prevent tax evasion or tax avoidance under the tax laws prevailing in either of the countries or

     (2) for the investigation of cases of such tax evasion or tax avoidance, or

e) for the recovery of income tax under the Income-tax Act of India and under the corresponding law in force in such other country or specified territory outside India.

The Sections also provide that if any non-resident of India to whom a DTAA applies wants to claim relief under such agreement will have to furnish a certificate of his/her being a resident in any country outside India obtained from the Government of that country.

Further, sub-sections 5 of sections 90 and 90A also require such non-resident of India desiring to claim relief under the applicable DTAA to provide such other documents and information, as prescribed under Rule 21AB of the Income-tax Rules, 1962.

Rule 21AB of Income Tax Rules

Sub-rule 1 of Rule 21AB provides that for the purpose of Sections 90(5) and 90A(5), the assessee has to furnish Form 10F to the Income-tax department.

So, the key takeaway from the above discussion can be that if any non-resident of India wants to claim relief under the applicable DTAA to avoid paying taxes twice on the same income, he will have to furnish the following two important documents to the tax authorities of India:

   1) A tax residency certificate obtained from the Government of the country or the specified territory he claims to be a resident of, and 

    2) Form 10F

Also read: Timeline to Claim Foreign Tax Credit Extended - Major Relief against Double Taxation 

Components of Form 10F

Rule 21AB also prescribes the required information that an assessee must furnish in Form 10F Income tax department. Accordingly, the details that an assessee has to provide while filing Form 10F are as follows:

    1) Status (individual, firm, company etc.) of the assessee; 

   2) Nationality (in case of an individual assessee) or country or specified territory of registration or incorporation (in case of another assessee); 

    3) Tax identification number (TIN) in the country or specified territory of his residence. If the assessee does not have any such number, then a unique number based on which he is identified by the Government of the country or the specified territory of which the assessee claims to be a resident; 

    4) Address of the assessee in the country or specified territory outside India, and 

   5) Period for which the residential status of the assessee, as mentioned in the tax residency certificate, is applicable.

Procedure of filing Form 10F

Form 10F will now be required to be filed through the e-filing account of the non-resident taxpayer on the Income Tax portal. So, let us go through the steps that would be required to be followed to furnish the Form electronically:

    1) Click on the link- https://www.incometax.gov.in/iec/foportal/

    2) Login to your account on the Income-tax portal using your login credentials.Kindly note that for logging in on the Income-tax portal, PAN is mandatory.

    3) On the E-file tab, click on ‘Income Tax Forms’ and then select ‘File Income Tax Forms’.

    4) Click on ‘Persons not dependent on any Source of Income (Source of Income not relevant)’.

    5) Now select Form 10F from the list of available forms.

    6) Select the Assessment Year (AY) for which it is required to be filed and click on ‘Continue’.

    7) Fill in the required details (as mentioned in the earlier portion of the article) and attach your Tax Residency Certificate.

    8) Save the draft and then click on preview.

    9) In the next step, verify the Form, either through a digital signature or an electronic verification code, as the case may be.

    10) Once the form has been verified, click on the ‘Submit’ tab.

Also read: Residential Status of Certain Individuals under Income Tax Act, 1961

Implications of Mandating Electronic Filing of Form 10F

Coming to the implications of the notification, in the following portion, we have highlighted the practical challenges that have got triggered due to mandating e-filing of Form 10F: 

   1) Requirement to Obtain PAN

This step of the Government has created additional compliance requirements for non-resident taxpayers as they would now be required to obtain a PAN (which may not be mandatory otherwise in all cases) and register on the Income-tax portal to be able to file Form 10F electronically.

   2) Conflict with the Government’s Intention in Rule 37BC

This requirement of getting a PAN for filing Form 10F conflicts with the Government’s intention of providing relaxation to non-residents from obtaining PAN under Rule 37BC.

In accordance with Rule 37BC of the Income-tax Rules, in the case of non-resident assessees, payments such as interest, royalty, fees for technical services, dividend, and payment on the transfer of any capital asset will not be subject to the higher TDS rate of 20% even in cases where PAN is not furnished, so long as such assessee (deductee) provides certain details and documents such as name, e-mail address, contact number, address in the resident country, TRC, etc. to the deductor.

On the contrary, now that the e-filing of Form 10F is mandated, every assessee would be compelled to acquire a PAN to submit the Form through the portal.

   3) Requirement to Obtain a DSC

Moreover, Rule 131 of the Income-tax Rules, which deals with the procedure for electronic filing of the forms, requires the forms to be signed either through an Electronic Verification Code or through a Digital Signature Certificate (DSC).

Accordingly, in cases where an assessee is a person other than an individual, the director or partner or authorised signatory of such assessee, who might also be a non-resident having no income from India, would be required to obtain a DSC in India to e-verify Form 10F.

In order to alleviate such practical difficulties caused for non-resident taxpayers due to the mandatory e-filing of Form 10F, several representations are presently being made to the ITA. However, until any clarification is issued by the Income-tax department, the non-resident assessees who want to avail relief under the applicable DTAA should evaluate the impact of the notification and accordingly plan to meet the compliance requirements.

Also read:  Tax Implications on Forex Transactions – TCS on remittances outside India

Conclusion:

Mandatory e-filing of Form 10F has certainly posed practical challenges and created an unnecessary compliance burden on the part of non-resident assessees availing of tax treaty benefits who are otherwise not required to undertake any further compliance under the Act.

Hence, considering such hardships, we expect the Income-tax department to either do away with the mandatory electronic filing of Form 10F or develop a mechanism wherein the Form can be furnished electronically without having to create a PAN-based login ID on the Income-tax portal for non-resident assessees.

Take action now and file your Form 10F electronically to claim relief under the DTAA and avoid double taxation! To connect with us! Contact us at info@manishanilgupta.com

Disclaimer: The information provided in this blog is for general purposes only and should not be considered as professional advice