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. Made under s.395, s.400 of the Income-tax Act, 2025.
Rule 214 gives effect to Section 395 and Section 400 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule governs the payer's application for a certificate determining the appropriate proportion of a sum, other than salary, payable to a non-resident that is chargeable to tax.
Sub-rule (1) requires an application by a person 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) to be made in Form No. 129.
Sub-rule (2) tells the Assessing Officer what to do with it: he shall examine whether the sum being paid or credited to the non-resident is chargeable to tax under the Act read with the relevant Double Taxation Avoidance Agreement, if any, and where the whole of the sum would not be income chargeable in the case of the non-resident recipient, he shall proceed to determine the appropriate proportion of the sum chargeable to tax, and issue a certificate of it for tax deduction under section 393(2) [Table: Sl. No. 17].
Sub-rule (3) lists what he must take into consideration in relation to the recipient before issuing the certificate: tax payable on the estimated income of the relevant tax year; tax payable on the assessed or returned or estimated income, as the case may be, of the preceding four tax years; existing liability under the Act and under the Income-tax Act, 1961 as it existed prior to its repeal; and advance tax payment, tax deducted at source and tax collected at source for the relevant tax year till the date of making the application or till the date of issuance of the certificate.
Sub-rule (4) limits the certificate: it is valid only for the payment to the non-resident named in it and for such period of the tax year as may be specified in it, unless cancelled by the Assessing Officer at any time before the expiry of the specified period. Sub-rule (5) allows an application for a fresh certificate after the expiry of the period of validity of the earlier certificate, or within three months before that expiry.
Where a payment to a non-resident is only partly income chargeable in India, deduction on the gross sum takes more than the law requires and leaves the recipient to recover it. Section 395(2) and section 400(3) let that proportion be settled in advance, and the rule supplies the application, the enquiry the Assessing Officer must make, and the limits of the certificate that results. The considerations in sub-rule (3) are what protect the revenue in the meantime: past assessments, existing liabilities and taxes already paid for the year.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Past years whose tax position is taken into consideration | The preceding four tax years | Tax payable on the assessed or returned or estimated income, as the case may be | Sub-rule (3)(b) |
| Period of validity of the certificate | Such period of the tax year as may be specified in the certificate | Valid only for the payment to the non-resident named in it, and subject to cancellation before expiry | Sub-rule (4) |
| Window for applying for a fresh certificate before expiry | Within three months before the expiry of the earlier certificate | An application may also be made after the expiry of the period of validity | Sub-rule (5) |
The certificate is narrow in two directions and both are in sub-rule (4): it covers only the payment to the non-resident named in it, so it cannot be used for a payment to another recipient, and it runs only for such period of the tax year as is specified in it, not for the year as a whole. It is also revocable — the Assessing Officer may cancel it at any time before the expiry of the specified period. The rule does not fix any proportion or rate: the appropriate proportion is what the Assessing Officer determines after examining chargeability under the Act read with the relevant Double Taxation Avoidance Agreement, and the certificate issues for deduction under section 393(2) [Table: Sl. No. 17]. Sub-rule (5) allows continuity — a fresh application may be made within three months before the earlier certificate expires — but it is permissive, so the payer must actually apply again rather than assume the certificate rolls over. Note that the application is made by the payer; the machinery here is not the non-resident's own claim.
An Indian company contracts to pay Rs 5 crore to a non-resident for services of which only part is chargeable in India under the Act read with the applicable treaty. It applies in Form No. 129, and the Assessing Officer, after considering the recipient's estimated income for the year, the assessed or returned income of the preceding four tax years, existing liabilities and taxes already paid for the year, certifies that a proportion of each payment is chargeable and issues the certificate for deduction under section 393(2) [Table: Sl. No. 17] for a specified part of the tax year. The company may apply for a fresh certificate within three months before that period expires; if it pays another non-resident under a similar contract, that payment needs its own certificate.
You meet it before remitting to a non-resident, in the Form No. 129 application and the certificate that follows, and again when the certificate's period is running out and a fresh one is needed.
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.
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.