1. Relaxation of rules for application of higher withholding tax rate in the absence of a PAN
The Indian Income Tax Act provides for a payer to apply a higher withholding tax rate if the recipient of income does not furnish its Permanent Account Number (PAN). This was also applicable where payments were effected to non-residents and the latter had to obtain a PAN to that effect.
However, the Indian tax authorities have recently issued a notification whereby the requirement for non-residents to have a PAN has been made less stringent. Pursuant to the notification, the higher withholding tax rate would not apply to a non-resident for the following payments, even though it does not have a PAN:
(iii) Fees for technical services; and
(iv) Payments on transfer of any capital assets.
Nonetheless, the non-residents which would be receiving the income should furnish the following details:
• name, email, contact number;
• address in country of residence;
• Tax Residency Certificate (TRC); and
• Tax Identification Number (TIN) in country of residence.
Most of the above details are already being provided by non-resident recipients of income by way of a TRC and/or Form 10F which are prerequisites in India to avail of benefits under a Double Taxation Avoidance Agreement (DTAA). The new amendment will, therefore, reduce the administrative and compliance burden for non-residents which are receiving income from India.
2. Amendment to the retrospective applicability of the General Anti-Avoidance Rules (GAAR)
The Income tax department in India has, via a notification issued on 22 June 2016, provided clarifications on the retrospective applicability of the General Anti-Avoidance Rule (GAAR) as follows:
(i) GAAR will not apply to income derived by a person from transfer of investments made before 1 April 2017. The earlier version of the GAAR provided for this date to be 30 August 2010.
(ii) GAAR will apply to any arrangement irrespective of the date it has been entered into if a tax benefit is obtained on or after 1 April 2017. Previously, this date was 1 April 2015. 2
3. Liberalisation of foreign direct investment policy in India
Further to a meeting chaired by Prime Minister Narendra Modi on 20 June 2016, the Government of India has taken steps to further liberalise the foreign direct investment (FDI) regime and on 24 June 2016, the Department of Industrial Policy and Promotion (DIPP) issued Press Note 5 of 2016 Series (Press Note). Now, most sectors would fall under the automatic approval route, except for a small negative list. As per the Press Note, changes introduced in the policy include increasing sectorial caps, bringing more activities under the automatic route and easing of conditionality for foreign investment.