In The Hindu dated October 29, 2007, it has been pointed out that non-resident Indians (NRIs) can file Form 15G and 15H. But banks and institutions continue to take a negative attitude. What is more, tax is deducted at 30 per cent, though you have indicated in The Hindu dated October 29, 2007 and January 4, 2008 that in the case of non-resident Indians, interest from investments would require tax deduction only at 20 per cent. My client, who is a resident of the U.K. is entitled to the concessional rate of 15 per cent under the Double Tax Avoidance Agreement. This has also been denied by a letter from a public sector bank.
A number of letters have been received on the subject, since banks and institutions would like to play safe. As regards rate of tax to be deducted on interest payable to non-residents, the Authority for Advance Ruling in V. Ravi Narayanan In re (2008) 300 ITR 62 (AAR) has ruled that in the context of interest from non-resident ordinary account to be interest income in the nature of investment income vide clause (1)(b)(i)(A) of Part II of Schedule I of the Finance Act, 2007, and that the applicable tax rate is 20 per cent. This ruling confirms to the view consistently taken in these columns.
As regards permissibility of Form 15G and 15H, the reply received by the reader from the bank states that Section 197A(1) permits self-declaration form in 15G and 15H only for residents, but it is Sec. 197A(1A), which is applicable for interest, which does not have the qualification “who is a resident in India” as in 197A(1). In fact, Sec. 197A(1A) was inserted with effect from June 1, 1992, where the word “person” other than a firm or a company was substituted for “individual”, so that Hindu Undivided Families (HUFs) and other classes of assessees like charitable institution formed as trust or society, could file self-declaration form. The additional words “who is resident in India” also do not follow the word “person” in sub-section (1A).
Self-declaration form was also amended omitting that part of declaration requiring a statement that the declarant is a resident. Notwithstanding these changes, this facility is widely denied to non-resident Indians.
Both the above grievances have been aired more than once in these columns, but it has not caught the attention of the Board to correct the mistaken interpretation of banks and other financial institutions. Is it because of the short-sighted policy of inflating the current collections at the expense of future refunds, which sometimes may not be claimed at all? There is no purpose in increasing the workload of the Department, while causing inconvenience to the taxpayers.
As for the concessional rate in Double Tax Avoidance Agreement between India and the U.K., a nationalised bank has replied that eligibility has to be ascertained with reference “to the documentary evidence relevant to declaration of tax authorities in the country, where the income is assessed”.
It is for this reason, that the claim for deduction of 15 per cent is not entertained. Double Tax Avoidance Agreements do not require assessment in the other country as a pre-condition for relief, if the assessee is a non-resident holding a foreign passport as in this case, a U.K. passport, in respect of income from interest, deduction at 15 per cent should ordinarily be acceptable. It is certainly open to the bank to ask for any information from the account-holder in this regard, but it cannot avoid implementation on the ground, that detailed verification is required.
The Board has issued more than one circular for adopting the concessional rate under the agreement even for purposes of tax deduction at source. This is again another area where banks and institutions are not prepared to take responsibility expected of them. In view of such excess deductions arising out of extra-cautious attitude with tax administration itself being a silent spectator to the unnecessary tax collected at source, a burden is placed on the non-resident Indians to seek refund of a tax not leviable at all.