Form 10F: Income Tax Declaration for Non-Residents

This article was prepared by India Press Live. It outlines the purpose and significance of Form 10F under the Income Tax Act, including the requirements for filing, the benefits of having a Tax Residency Certificate, and the necessity for a Digital Signature Certificate when seeking Double Tax Avoidance Agreement (DTAA) benefits.

Introduction

The world today is more interconnected than ever, with global trade expanding rapidly. However, this growth has resulted in a complicated landscape of international taxation, making it difficult for non-resident taxpayers to avoid being taxed twice on the same income. To address these challenges, countries have established agreements known as Double Tax Avoidance Agreements (DTAA). These agreements prevent individuals from having to pay taxes in both their home and host countries.

To effectively benefit from these agreements, it is crucial to adhere to specific regulations. In India, one of the key documents required to leverage the benefits of a DTAA is Form 10F.

What is Form 10F of Income Tax, 1961?

Form 10F is a self-declaration tax form designed for non-resident taxpayers, whether individuals or entities. This form is essential for claiming benefits under the DTAA when their Tax Residency Certificate (TRC) lacks specific necessary details. The Central Board of Direct Taxes (CBDT) has stated that taxpayers do not need a Permanent Account Number (PAN) to file this form electronically on the income tax portal.

In July 2022, the Directorate of Income Tax mandated the electronic submission of Form 10F. Initially, there were notices from the CBDT that provided relaxations concerning the submission of Form 10F for certain taxpayers. Specifically, individuals who were not required to possess a PAN according to the Income Tax Act, 1961, and related rules were granted these relaxations, although the manual filing of the form remained mandatory.

The introduction of e-filing for Form 10F on the income tax portal simplified the submission process for non-residents, including those without a PAN. This allows taxpayers to fill out the form after creating an account on the portal.

Form 10F Download

You can download Form 10F from here.

Tax Residency Certificate (TRC) and DTAA

A Tax Residency Certificate is an important document issued by a taxpayer’s home country, verifying their tax residency status. Form 10F is used to provide additional information that may be missing from the TRC. Notably, TRCs do not have a standard format, but certain elements are critical when utilizing the benefits of the DTAA:

1. The taxpayer’s designation (individual, company, etc.).
2. The nationality of the individual or the country of incorporation of a company.
3. Tax Identification Number (TIN) or Unique Identification Number (UID) from the resident country.
4. The effective period of the TRC.
5. The taxpayer’s address in their home country during the TRC’s validity period.

Sections 90 and 90A of the Income Tax Act provide provisions that allow taxpayers to seek relief from double taxation when their incomes are taxed in both countries. This provision applies to both residents and non-residents. India has an extensive network of tax treaties that help curb tax evasion and promote business by avoiding double taxation, which can apply to dividends, interest income, salary earnings, and royalty payments.

Documents Required for Filing Form 10F

To successfully file Form 10F, the following documents are generally required:

1. Non-resident taxpayer’s status
2. Nationality or incorporation country
3. Home country’s tax identification number
4. TRC applicability period
5. Home country address
6. PAN (if applicable)
7. Digital Signature Certificate (DSC)
8. Proof of nationality

Is It Mandatory to File Form 10F Online, and Is a PAN Required?

While it is not always mandatory to file Form 10F when certain details are missing from the TRC, it is advisable for all non-residents seeking relief under the DTAA to complete this form. Whether a PAN is needed varies based on individual circumstances:

1. Non-residents whose total income surpasses the exemption limit must obtain a PAN.
2. Non-residents running businesses with turnovers or sales exceeding five lakh in any prior year are also required to obtain a PAN.

However, there are exemptions for non-residents that have invested in specific domestic funds. To qualify for these exemptions, the following criteria must be met:

1. The only source of income from India is from investing in a specified fund during the previous year.
2. When making an investment, the fund must deduct tax from payments, which is then paid to the Indian government.
3. Investors must provide the fund with necessary details.

1. Name, email, and contact number.
2. Address in India or specified territories outside India.
3. Declaration of residency to prove residency outside India.
4. Tax Identification Number or Unique Identification Number.

Additionally, non-residents engaging in capital asset transactions listed under Section 47(viiab) within an International Financial Services Centre (IFSC) or a Recognised Stock Exchange (RSE) do not require a PAN.

Requirement of Digital Signature Certificate

A Digital Signature Certificate (DSC) is mandatory for electronically signing Form 10F. The DSC verifies a signatory’s identity and ensures document integrity. Issued by certifying authorities in India, a DSC contains details such as name, email, public key, and validity duration. Using a DSC for Form 10F submission enhances security, reduces forgery risks, and is particularly critical for those without a PAN due to expedited processing.

E-filing of Form 10F of Income Tax, 1961

• Step 1: Log in to the official Income Tax e-filing portal using your PAN and user ID or register if you don’t have an account.
• Step 2: Select the e-file option available in your dashboard.
• Step 3: From the e-file dropdown, choose “Income Tax Forms” and select “File Income Tax Forms.”
• Step 4: Choose one of the options: “Persons with Business/Professional Income,” “Persons without Business/Professional Income,” or “Persons not dependent on any Source of Income.” Select the last option.
• Step 5: In the third column, find and click on the option to e-file Form 10F.
• Step 6: A dropdown will let you select the assessment year for tax relief.
• Step 7: Have your TRC ready, and click on the “let’s get started” tab while reviewing the instructions.
• Step 8: Input the authorized signatory’s details if applicable and select Section 90 or 90A from the dropdown.
• Step 9: The PAN and status fields should be pre-filled; ensure to update any required details.
• Step 10: Select the country or territory of incorporation from the dropdown menu.
• Step 11: Provide your Tax Identification Number to help government identification.
• Step 12: Fill in your address outside India.
• Step 13: Input the address of the authority that issued your TRC.
• Step 14: Provide verification and attach your TRC while ensuring the size of attachments doesn’t exceed 5 MB each, with a total limit of 50 MB, restricted to zip and PDF formats.

Consequences of Not Filing Form 10F

Filing Form 10F is vital for securing benefits under the DTAA. Neglecting to submit this form could lead to the following consequences:

1. Without Form 10F, taxpayers may not be able to claim tax benefits, resulting in higher TDS rates under Indian laws. The standard rates could be much steeper compared to the reduced rates available through the DTAA.
2. Non-compliance can lead taxpayers to face full taxation on incomes that could otherwise be exempt or reduced under the DTAA.
3. Claiming reduced taxes without filing Form 10F could classify the taxpayer as an ‘assessee in default,’ leading to additional penalties and liabilities.
4. Proper documentation is necessary for remittance. The absence of Form 10F may complicate or delay the remittance process for non-resident taxpayers transferring funds from India.
5. The Income Tax Department might initiate non-compliance proceedings against those who fail to file Form 10F. This may hinder the taxpayer’s ability to obtain a tax clearance certificate, essential for various financial and legal transactions.
6. Section 234B and Section 234C of the Income Tax Act can lead to imposed interest for failing tax installments and delayed payments. The tax department may penalize the failure to deduct correct TDS amounts under sections 271C and 276B.
7. A lack of filing Form 10F could result in non-residents being taxed at higher rates on investment income. Many investments can be exempted from taxes under the DTAA. Without Form 10F, non-residents may miss out on these exemptions, potentially discouraging future investments in India.

Benefits of Filing Form 10F of Income Tax, 1961

To enjoy the benefits of DTAA, obtaining a TRC followed by filing Form 10F to provide any missing information is essential. Here are some key benefits of completing Form 10F:

1. Filing Form 10F enables non-residents to access lower Tax Deducted at Source (TDS) rates on income from various sources, including interest, dividends, and royalties. These reduced rates, as outlined in the DTAA, can result in significant tax savings over standard tax rates, which is particularly beneficial for foreign investors looking to optimize their net income.
2. Compliance with Form 10F is crucial under Indian tax law. Non-compliance may restrict access to DTAA benefits, exposing taxpayers to future assessments and penalties.
3. Accurate and timely submission of Form 10F permits tax authorities to process returns efficiently, potentially speeding up refund issuance and minimizing disruptions in financial management.

Conclusion

Form 10F is essential for non-residents wishing to take full advantage of the benefits provided under the DTAA. This form offers additional details necessary for validating a taxpayer’s residency status. Understanding the process for claiming these benefits and adhering to regulatory requirements can facilitate effective tax planning and better financial management. The introduction of e-filing for Form 10F has made the process more user-friendly and accessible for non-residents.

Frequently Asked Questions (FAQs)

Is it mandatory to file Form 10F online?

Yes, it is mandatory for non-residents to electronically file Form 10F, regardless of whether they possess a PAN in India. This process requires other necessary documentation along with a Digital Signature Certificate (DSC) to streamline submissions.

What is the difference between Form 10F and TRC?

The Tax Residency Certificate (TRC) serves as definitive proof of residency, while Form 10F acts as a self-declaration that provides supplementary information mandated by the DTAA. The TRC is issued by tax authorities in the non-resident’s country, while Form 10F can be submitted electronically and supports claims under the DTAA.

What is Form 10F used for?

Form 10F is utilized by non-residents as a self-declaration document that, in conjunction with the TRC, allows them to claim benefits under the DTAA. It offers additional necessary details required by Indian tax authorities.