The Reserve Bank of India (RBI) on Monday said it has reviewed the policy relating to issue of instructions under Foreign Exchange Management Act, 1999 (FEMA) and clarified that it has decided against issuing any instructions in regard to deduction of tax at source.
However, RBI said, it would be mandatory on the part of authorised dealer banks to comply with the requirement of the tax laws, as applicable, RBI said.
Under section 195 of the Income Tax Act read with Rule 29B of the IT Rules, any person responsible for making payment to a non-resident or to a foreign company, any interest or any other sum chargeable under the IT Act, should deduct income tax thereon at the rate in force payment or credit the amount.
Section 195 of the IT Act is not limited to interest income and it takes into account business income also, RBI clarified.
A chartered accountant's certificate is needed to be furnished to account for remittances for supply of articles or things (plant, machinery, equipment, etc) or computer software and business income, respectively with foreign parties.
Accordingly, a remitter of foreign exchange is required to submit to the authorised dealer, an undertaking and chartered accountant's certificate in the format prescribed by CBDT at the time of making the remittance in foreign exchange to non-residents, including remittances which are in the nature of trade transactions such as import payments.