India: New facility introduced for non-residents to register on Indian Income Tax Website without tax registration (“PAN”)

last updated on 17 October 2023 | reading time approx. 3 minutes

In an unexpected, but much needed move favoring non-residents and foreign companies, the Indian tax department introduced a facility to enable non-residents and foreign companies to register on the Income Tax Portal without obtaining a tax registration in India (“Permanent Account Number” or “PAN”).

Until last week, foreign companies who did not have a PAN had been facing a challenge in dealing with their Indian customers due to the requirement of filing of Form 10F electronically for claiming treaty benefits. On the one hand, relaxations existed in the Indian income tax law from furnishing PAN to Indian tax deductors / payors of income to such foreign companies on the basis of valid Tax Residency Certificate. Whereas, on the other hand, foreign companies who were desirous of availing beneficial rates as per the respective tax treaty of country of residence were required to file the Form 10F electronically by virtue of Notification No. 03/2022 dated 16 July 2022. These foreign companies were therefore mandatorily required to obtain a PAN because, procedurally, a PAN was required to create an account on the Income Tax Portal and in turn file a Form 10F.

Thus, for undertaking the electronic filing of Form 10F, non-residents were required to register on the Indian income tax website, for which a Permanent Account Number (“PAN”) was inevitable.

In a welcome move, the income tax department has introduced a facility to enable non-residents to register on the Income Tax Portal without obtaining the PAN.

The Indian Income Tax Act provides an option to non-residents to discharge their tax liability either in accordance with the provisions of Income Tax Act or Double Taxation Avoidance Agreements (“DTAA”) whichever is more beneficial.

However, in order to avail the benefit available under the DTAA, non-residents are required to fulfil certain conditions such as furnishing of Tax Residency Certificate (“TRC”) issued by the local tax authorities. In case the TRC does not contain all the required details (like tax identification number, period, address, etc.) as mandated, non-residents are also required to furnish Form 10F. The CBDT mandated furnishing of Form 10F electronically last year.

For filing the Form 10F electronically, non-residents were required to register themselves on the Income Tax Portal with their PAN. Which meant, a PAN was necessarily required to be obtained by non-residents.

The income tax department has provided a functionality on the portal to allow non-residents without a PAN to register themselves.

In this connection, the following details are required to be furnished on the Income Tax Portal:

Basic details such as name of the taxpayer, date of incorporation, tax identification number, and country of residence.
Key person details such as full name of the key person, date of birth, tax identification number and, designation of such key person
Contact details such as primary mobile number and e-mail ID, secondary mobile number and e-mail ID, and postal address of non-resident. The primary mobile number and e-mail ID will be verified by way of an OTP.
Attachments: The non-resident must upload

ID proof,
address proof
a copy of TRC on Income Tax Portal.

In respect of ID proof and address proof, a non-resident is required to upload a document which is considered as valid document in his country of residency.

On basis of the above mentioned elements and verification of OTP, the non-resident will receive a user ID on the registered email ID, through which login on the Income Tax Portal should be possible.

Once this is complete, it shall be possible to upload the Form 10F electronically upon submission of TRC and verification by way of OTPs sent on mobile and e-mail.

Return filing compliance:

It shall however be noted that, despite the above relaxation, where the tax treaty provisions are availed by non-residents, there is still an obligation on their part to file tax returns in India. The tax rate for income earned in the nature of Royalty, Fees for Technical Services (“FTS”), Interest and Dividends is 20 per cent under the Indian Domestic Tax law (increased for Royalty and FTS to 20 per cent from 10 per cent) from the Indian financial year 2023-24, whereas in most treaties, it is either 10 per cent or 15 per cent.

A general relaxation is provided from filing returns where the taxes are withheld as per rates provided for in the Income Tax Act provisions. In case the non-resident prefers to be governed by the beneficial treaty rates, it shall be obligated to file tax returns in India.

In case of Fiscally Transparent Entities, the situation is tricky as very often the TRC is not granted and in the absence of TRC, the Form 10F cannot be filed. Such entities may be compelled to accept the higher withholding rate of 20 per cent if their customers do not accept their claim to the treaty provisions.

Thus, the new relaxation of permitting non-residents to register without obtaining a PAN and filing the Form 10F online seems to benefit those non-residents who do not wish to avail the beneficial treaty provisions. Therefore, depending upon quantum involved, non-residents could evaluate between foregoing the treaty rates vis-a-vis undertaking all compliances under the Income Tax Act, including that of obtaining PAN, and filing tax returns in India.