Rule 214: Payer application to fix the taxable share of a payment to a non-resident
Rule 214 lets a person paying a sum (other than salary) to a non-resident apply in Form No. 129 for the Assessing Officer to determine what proportion of the sum is chargeable to tax in India, under section 395(2) or section 400(3). The Assessing Officer examines chargeability under the Act and any Double Taxation Avoidance Agreement, considers the recipient's tax record, and issues a certificate. TDS under section 393(2) [Table: Sl. No. 17] is then made on the chargeable proportion only.
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Bare law
Rule 214 - Application by payer for grant of certificate under section 395(2) or section 400(3) for determination of appropriate proportion of sum (other than salary), payable to non-resident, chargeable in case of recipients
(1) An application by a person for determination of appropriate proportion of sum chargeable in the case of non-resident recipient under section 395(2) or section 400(3), shall be made in Form No. 129.
(2) The Assessing Officer shall examine, whether the sum being paid or credited by such person to the non-resident is chargeable to tax under the provisions of the Act read with the relevant Double Taxation Avoidance Agreement, if any, and— (a) where the whole of such sum would not be the income chargeable in case of the non-resident recipient, he shall proceed to determine the appropriate proportion of such sum chargeable to tax; and (b) issue a certificate thereof for tax deduction under section 393(2) [Table: Sl. No. 17].
(3) The Assessing Officer shall issue the certificate specified in sub-rule (2), after taking into consideration the following in relation to the recipient:— (a)tax payable on estimated income of the relevant tax year; (b)tax payable on the assessed or returned or estimated income, as the case may be, of preceding four tax years; (c)existing liability under the Act, and the Income-tax Act, 1961(43 of 1961) (as it existed prior to its repeal); and (d)advance tax payment, tax deducted at source and tax collected at source for the relevant tax year, till the date of making application or till the date of issuance of certificate.
(4) The certificate shall be valid only for the payment to non-resident named therein and for such period of the tax year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.
(5) An application for a fresh certificate may be made by the assessee after the expiry of the period of validity of the earlier certificate, or within three months before the expiry thereof.
Rule breakdown
Application — Rule 214(1)
A person may apply in Form No. 129 for determination of the appropriate proportion of a sum chargeable in the case of a non-resident recipient under section 395(2) or section 400(3).
Section 395(2) of the Act applies where the payer considers that the whole of a sum under section 393(2) [Table: Sl. No. 17] would not be chargeable in the recipient's hands. Section 400(3) applies to a class of persons or cases the Board notifies, for sums paid to a non-resident (not being a company) or a foreign company, whether or not chargeable.
Examination and certificate — Rule 214(2) and (3)
The Assessing Officer examines whether the sum is chargeable under the Act read with any relevant Double Taxation Avoidance Agreement. Where the whole sum would not be chargeable, he determines the appropriate chargeable proportion and issues a certificate for TDS under section 393(2) [Table: Sl. No. 17].
Before issuing the certificate he considers, for the recipient: tax payable on estimated income of the relevant tax year; tax payable on assessed, returned or estimated income of the preceding four tax years; existing liability under the Act and the Income-tax Act, 1961 (as it existed before repeal); and advance tax, TDS and TCS for the relevant tax year up to the application date or the date of the certificate.
Validity and renewal — Rule 214(4) and (5)
The certificate is valid only for payments to the non-resident named in it, for the period of the tax year specified, unless cancelled earlier by the Assessing Officer.
A fresh application may be made after the earlier certificate expires, or within three months before it expires.
Key takeaways
Form No. 129
The payer applies in Form No. 129.
Treaty considered
Chargeability is examined under the Act read with any relevant DTAA.
Named payee only
The certificate covers payments to the named non-resident for the specified period.
Practical checklist
- Collect the treaty position and the recipient's tax details before applying.
- Apply well before the payment date.
- Renew within three months before expiry if payments continue.
Avoid
- Do not apply the certificate to payments to a different non-resident.
- Do not deduct on the reduced proportion before the certificate is issued.
FAQs
Who applies under Rule 214, the payer or the non-resident?
The payer, that is the person paying or crediting the sum to the non-resident.
Does Rule 214 apply to salary?
No. The rule's heading refers to a sum other than salary, and section 393(2) [Table: Sl. No. 17] excludes income chargeable under the head "Salaries".
What happens after the certificate is issued?
Under section 395(2)(c) of the Act, tax is deducted under section 393(2) [Table: Sl. No. 17] only on the proportion determined as chargeable.
When can a fresh certificate be sought?
After the earlier certificate expires, or within three months before it expires.
Glossary
- Form No. 129
- Payer's application for determination of the chargeable proportion of a sum payable to a non-resident.
- DTAA
- Double Taxation Avoidance Agreement.