Non-residents companies are facing the issue of holding PAN despite they are not having any taxable Income in India and the same is required merely for reporting purposes or for technical compliances such as Filing for Form 10F.
Considering the unnecessary requirement for foreign entities of holding PAN, CBDT is taking various steps to resolve this issue. Recently, the Income Tax Department has enabled the option of filing Form 10F without PAN for foreign companies and non-resident persons on the Income tax portal. In the same direction, CBDT has made amendments in Income Tax Rules, 1962 vide Notification No. 88/2023 dated 10th October, 2023.
In a recent amendment, the Income Tax Department has exempted non-resident Individuals and foreign companies from submitting PAN for opening of Bank Account at GIFT International Financial Service Centre. Instead, Foreign companies and non-resident Individuals are required to furnish Form 60.
Detailed analysis of amendments made in Income Tax Rules is as follows:
1. Amendment in Rule 114B of Income Tax Rules- Transactions in relation to which PAN is to be quoted in all documents for the purpose of Section 139A(5)(c)
- Rule 114B of Income Tax rules specifies the transactions where PAN is required to be quoted.
- As per S. No. 2, PAN is required to be quoted while Opening an account [other than a time-deposit referred to at Sl. No.12 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank.
- Therefore till 9th October, 2023, every non-resident person or foreign company is required to obtain PAN for opening a Bank Account.
- However, as per Amendment Income Tax rules, a foreign company which:
- does not have any income chargeable to tax in India; and
- Does not have a PAN
May open a bank account in an GIFT-IFSC banking unit. However, for this purpose, the foreign company is required to make a declaration in Form No. 60
- “IFSC banking unit” means a financial institution defined under Section 3(1)(c) of the International Financial Services Centres Authority Act, 2019, that is licensed or permitted by the International Financial Services Centres Authority to undertake permissible activities under the International Financial Services Centres Authority (Banking) Regulations, 2020.
- Gujarat International Finance Tec-City (GIFT)-IFSC is being promoted as a tax-neutral enclave for the financial sector.
2. Amendment in Rule 114BA of Income Tax Rules- Transactions for which PAN is required to be obtained
- As per Rule 114BA of Income Tax Rules read with Section 139A(1)(vii) of Income Tax Act, PAN is required to obtained by the person who enter into any of the following transaction:
- Aggregate cash deposit during a Financial year is INR 20 Lacs or more in one or more account of a person with a banking company or a co-operative bank;
- Aggregate of cash withdrawal during a Financial year is INR 10 Lacs or more in one or more account of a person with a banking company or a co-operative bank;
- Opening of a current account or cash credit account with a banking company or a co-operative bank
- However, with effect from 10.10.2023, this clause shall apply in following clause:
- where the person involved is a non-resident (not being a company) or a foreign company;
- Transaction entered is with IFSC Banking Unit;
- such non-resident or the foreign company does not have any income chargeable to tax in India
3. Information to be Furnished in Form 60
Foreign Company or Non-resident Individual is required to furnish following information while filing Form 60 with Bank for opening a Bank account:
- Date of Birth/ Incorporation
- Taxpayer identification Number in the country of residence (if covered by third proviso)
- Date of transaction
- Amount of Transaction
- If applied for PAN and it is not yet generated enter date of application and acknowledgement number
- If PAN not applied, estimated total income (including income of spouse, minor child etc. as per section 64 of Income-tax Act, 1961) for the financial year in which the above transaction is held
- Agricultural income (Rs.)
- Other than agricultural income (Rs.)
- Income chargeable to tax (for a foreign company)
- Income not chargeable to tax (for a foreign company)
This amendment is a welcome move and it is intended to streamline the process for non-residents and foreign companies. Bank branches in the GIFT City are considered foreign branches and are subject to the same rules and regulations. This means that bank branches in the GIFT City require less regulatory compliance