Direct Tax Alert - CBDT expands the scope of exemption for Section 206C(1G)

BACKGROUND

As per Section 206C(1G) of the Income-tax Act, 1961 (IT Act), the tour operator shall be required to collect tax (TCS) at the rate of 5% in respect of overseas tour programme package. Representations were received from domestic tour operators who were facing difficulties in the collection of tax from non-resident individuals visiting India who were booking an overseas tour package from such domestic tour operators. Since such persons may not have a PAN, tax is required to be collected at higher rates. Further, such non-residents may find it difficult to furnish their tax returns and claim refunds. To remove such difficulties, the Central Government released a Press Release¹ specifying that the provisions of the said section shall not apply to a non-resident individual buyer visiting India. In this regard, the Central Board of Direct Taxes (CBDT) had issued a notification² to the exempt non-resident individual visiting India from the applicability of Section 206C(1G) of the IT Act.

Recently, the CBDT issued another Notification³ superseding its earlier notification. We, at BDO in India, have provided our comments on the same hereunder:

Recent Notification provides that Section 206C(1G) of the IT Act shall not apply to a non-resident buyer who does not have a Permanent Establishment (PE) in India. Thus, now twin conditions need to be satisfied for the exemption to apply:

1. The taxpayer (i.e., buyer) should be a non-resident;

2. Such taxpayers shouldn't have a PE in India.

BDO COMMENTS

The CBDT has enlarged the list of non-resident taxpayers who are exempted from the applicability of section 206C(1G) of the IT Act by exempting foreign companies, non-corporate entities like LLP, etc. It is also pertinent to note that for the non-resident individual taxpayer, the requirement of visiting India has also been done away with. However, the exemption shall be available only if the concerned non-resident buyer (of the tour package) does not have a PE in India. While granting the exemption, the collector should collate documentary evidence to satisfy that the buyer is a non-resident and does not have a PE in India.

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