The existing provision of section 206AA, inter alia, provides that any person who is entitled to receive income on which tax is deductible shall furnish his PAN to the payer, failing which tax shall be deducted at higher rates. Such provision is also applicable for non-residents.
Section 90 provides that non-resident taxpayers (to whom provisions of DTAA are applicable) shall apply provisions of the Income-tax Act or DTAA, whichever is more beneficial. However, due to application of Section 206AA such non-residents are taxed at higher rate of 20% even if tax rates under treaty are more beneficial.
The Finance Minister in his budget Speech had proposed to provide that on furnishing of alternative documents instead of PAN, the higher rate of TDS under Section 206AA will not apply to non-residents. Thus, in order to reduce compliance burden for the non-residents the Finance Act, 2016 provided exemption from applicability of Section 206AA in case of nonresidents subject to conditions as may be prescribed.
Now the CBDT has notified new Rule 37BC to prescribe such conditions. It has been provided that the provisions of Section 206AA shall not apply even if the nonresident payee does not have PAN subject to satisfaction of following conditions: