Form 15CB–Situation: Rate of Tax Based on Year of Deduction

Form 15CB – Situation: Rate of Tax Based on Year of Deduction

Impact on issue of Form 15CB Scenario

• An Indian company received an invoice from a non-resident payee in March 2023 (FY 2022–23) for technical knowhow / royalty services.
• The invoice was booked in March 2023, but tax was not deducted at source at that time. The company later deducted TDS in December 2023 (FY 2023–24) before making payment.Whether the applicable TDS rate should be based on:
  • The year of accrual (March 2023) when the expense was recorded in the books, or
  • The year of deduction (December 2023) when the actual tax deduction was made.

Form 15CB situation Analysis:

• Under Section 195 of the Income Tax Act, 1961, tax must be deducted “at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier.”
• Since no TDS was deducted at the time of credit, and the actual deduction happened later, the rate prevailing in the year of deduction (December 2023) applies.
• The Finance Act, 2022 prescribed a TDS rate of 10% on Royalty, Interest, and Fees for Technical Services (FTS).
• The Finance Act, 2023 increased this rate to 20%.
• Hence, as the TDS deduction occurred in FY 2023–24, the 20% rate is applicable even though the invoice pertained to FY 2022–23.

Impact

Particulars	FY 2022–23	FY 2023–24
Applicable Finance Act	Finance Act, 2022	Finance Act, 2023
TDS Rate on Royalty/FTS	10%	20%
Rate to be Applied	10% (Not applicable)	20% (Year of Deduction)

Compliance Requirements (Form 15CB Context)

• Form 15CB must be issued as per the rate applicable at the time of deduction (i.e., FY 2023–24 rate of 20%).
• If DTAA benefits are being claimed:
  • Obtain Tax Residency Certificate (TRC) and Form 10F for FY 2022–23, as the income relates to that year.
  • Verify that the DTAA rate (say, 10%) is available and applicable for the same period.
  • The lower of DTAA rate or Finance Act rate will apply.

TDS rate is determined based on the year of actual deduction/payment, not the year of accrual or booking. If the rate increases between the two financial years, the higher rate (in effect on the deduction date) will apply, unless DTAA relief (with valid TRC and Form 10F) reduces it.

In summary, “in the case of the rate of tax based on the year of deduction where the invoice was booked in March 2023 and the TDS was deducted in December 2023, then the rate applicable is based on year of deduction, not accrual.” & If the rate changed from 10% to 20%, apply 20%. And the taxpayer must obtain TRC and Form 10F for the relevant FY if the DTAA benefit is claimed.

How can CA’s ensure independence and discharge their responsibility?

Chartered Accountant’s Responsibilities

Responsibility Area	CA’s Required Action
Documentation	Obtain signed remittance letter, invoice/agreement, and proof of TDS deposit.
Declarations	Secure Withholding Tax Declaration (no PE / business connection) from payee.
Verification	Verify validity of TRC, Form 10F, and PAN / alternative details under Rule 37BC.
Independence	Ensure Form 15CA is filed by client only, not by CA, to maintain independence.
Record Keeping	Maintain complete file (supporting documents, calculations, correspondence) to justify tax determination in Form 15CB.
Compliance Risk	Section 271J imposes ₹10,000 penalty on CA for incorrect information in certificates. Hence, utmost diligence is required.

Income Tax Rule 26 : Rate of Exchange for Conversion into Rupees

Rule 26 of the Income Tax Rules, 1962 prescribes how to convert foreign currency income into Indian rupees for the purpose of tax deduction at source (TDS). For the purpose of deduction of tax at source under Chapter XVII-B, the rate of exchange for the calculation of the value in rupees of such income payable in foreign currency shall be the Telegraphic Transfer Buying Rate (TTBR) of such currency as on the date on which tax is required to be deducted at source. Key Definitions

• Telegraphic Transfer Buying Rate (TTBR): The rate adopted by the State Bank of India (SBI) for buying foreign currency through telegraphic transfer on a particular date.

• Date of Deduction: The date on which TDS is required to be deducted, i.e., at the time of payment or credit, whichever is earlier.

Practical Application Income Tax Rule 26

• When an Indian entity makes a remittance to a non-resident and the amount payable is in foreign currency (USD, EUR, GBP, etc.), it must Determine the TTBR of SBI on the date of TDS deduction. Convert the foreign currency income into INR using that rate. & Deduct and deposit TDS in rupees based on the converted value.
• The rule ensures uniformity in TDS calculation for foreign payments. The SBI TTBR is published daily and can be accessed through SBI’s Treasury Operations portal or verified via authorized bank circulars. If TTBR is not available for a particular currency, the equivalent rate may be derived from a major convertible currency like USD or EUR.
• Relevance to Form 15CB : When issuing Form 15CB, the Chartered Accountant must Use the TTBR rate as per Rule 26 for converting foreign currency to INR, & disclose the exchange rate used in the Form 15CB certificate.
• The taxpayer and Ca must ensure the computation sheet matches the TTBR rate of the TDS deduction date. Always retain a copy/screenshot of the SBI TTBR used on the TDS deduction date as documentary proof, in case of later scrutiny or mismatch between invoice rate and TDS rate.

Practical Guidance for CA’s in relation to Form 15CB

CA must ensure independence: CA files Form 15CB, client files Form 15CA. Maintain an audit trail of documents. CA must verify the tax residency certificate, Form 10F, and withholding tax compliance. Use UDIN for Form 15CB.

Important Legal Points related to Form 15CB Context

• Income tax Section 206AA & 206AB: Higher TDS rates for non-PAN and non-filers.
• Income Tax Rule 26: SBI TTBR rate for foreign currency conversion.
• Income tax Penalty Provisions in case non compliance of Form 15CB 
  • INR 1,00,000 under Section 271-I for non-filing/inaccurate filing.
  • INR 10,000 under Section 271J for incorrect info in Form 15CB.