This is an common question now a
days where equity in an Indian Company is held by an NRI and the simple answer
to the aforesaid question is that responsibility to deduct tax at source on
payment to NRI of such payment is on the Authorised Dealer (read bank through
which payments are made ). Here is the reason for such conclusion.
Sec. 195 of Income Tax Act,1961 states that if a non resident is paid any sum ,which is chargeable to tax, TDS should be
deducted.
Sec. 195 : Any person responsible for paying
to a non-resident, not being a company, or to a foreign company, any interest or any other sum
chargeable under the provisions of this Act (not being
income chargeable under the head “Salaries” ) shall,
at the time of credit of such income to the account of the payee or at the time of payment thereof in
cash or by the issue of a cheque or draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rates in force :
The meaning of the phrase “Any person responsible for
paying” used in section 195 above, has been defined in sec. 204
of Income Tax Act,1961, in the following words:-
204. For the purposes of the foregoing provisions
of this Chapter and section 285, the expression “person responsible for paying”
means—
(i) ……………..
(ii) ………………..
[(a) in the case of any sum payable to a
non-resident Indian, being any sum representing consideration for the
transfer by him of any foreign exchange asset, which is not a short-term capital
asset, the authorised dealer responsible for remitting such sum to the
non-resident Indian or for crediting such sum to his Non-resident (External)
Account maintained in accordance with the Foreign Exchange Regulation Act, 1973
(46 of 1973), and any rules made thereunder;]
(iii)………………..
[Explanation —For the purposes of this section:—
(a) “non-resident Indian” and “foreign exchange
asset” shall have the meanings assigned to them in Chapter XII-A;
(b) “authorised dealer”shall have the meaning
assigned to it in clause (b) of section 2 of the Foreign Exchange Regulation
Act, 1973 (46 of 1973).]
Before we proceed further , let us also
understand what do we mean by “foreign exchange asset” under Chapter XII-A
Section 115C defines foreign exchange asset
investment income and specified
assets as follows:
(b)”foreign exchange asset” means any specified
asset which the assessee has acquired or purchased with, or subscribed to in,
convertible foreign exchange;
(f) ‘specified asset’ means any of the following
assets, namely :
(i) shares in an Indian company;
(ii) debentures issued by an Indian company which
is not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iii) deposits with an Indian company which is
not a private company as defined in the Companies Act, 1956 (1 of 1956);
(iv) any security of the Central Government as
defined in clause (2) of section 2 of the Public Debt Act, 1944 (18 of
1944);
(v) such other assets as the Central Government
may specify in this behalf by notification in the Official Gazette.
So let us put section 204 (iia) in simple
words:
1. in the case of any sum payable to a
non-resident Indian,
2. being any sum representing consideration for
the transfer by him of any foreign exchange asset,
3. which is not a short-term capital asset,
4. the authorised dealer responsible for
remitting such sum to the non-resident Indian or for crediting such sum to his
Non-resident (External) Account shall be person responsible for deducting
TDS.
So in the present case it is pretty clear that
the sum being paid is for a foreign exchange asset,
which is not a short term capital asset. Hence Authorised Dealer and the not the
Indian Company paying the sum to NRI on buyback of shares shall be responsible
for deducting TDS u/s 195.
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