Rule 217 — Conditions under section 397(2)(c) for non-application of deduction of tax at higher rate, in case of non-residents. Made under s.397, s.262 of the Income-tax Act, 2025.
Rule 217 gives effect to Section 397 and Section 262 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) disapplies section 397(2)(b)(i) for a deductee who is a non-resident, not being a company, or a foreign company, who does not have a Permanent Account Number, in respect of payments in the nature of interest, royalty, fees for technical services, dividend and payments on transfer of any capital asset, if the deductee furnishes to the deductor the details and documents specified in sub-rule (2).
Sub-rule (2) lists them: name, e-mail id and contact number; address in the country or specified territory outside India of which the deductee is a resident; a certificate of his being resident in that country or specified territory from the Government of that country or specified territory, if the law there provides for issuance of such a certificate; and the deductee's Tax Identification Number in the country or specified territory of his residence, or, where no such number is available, a unique number by which the Government of that country or specified territory identifies him and of which he claims to be a resident.
Sub-rule (3) provides that section 397(2)(b)(i) shall also not apply in respect of payments made to a person being a non-resident, not being a company, or a foreign company, if that person is not required to apply for PAN in view of section 262 and the rules prescribed under it.
Section 397(2)(b)(i) raises the rate of deduction where the deductee has no Permanent Account Number. For a non-resident that is often a penalty for something he is not required to have. Section 397(2)(c) leaves the conditions for non-application to the rules, and this rule sets them: an identified deductee, traceable to a foreign tax administration through a Tax Identification Number and, where the country issues one, a Government residency certificate. Sub-rule (3) closes the circle by relieving a person whom section 262 and its rules do not require to apply for a Permanent Account Number at all.
Relief is not automatic on being a non-resident: it depends on the deductee actually furnishing the four items in sub-rule (2) to the deductor, and it is confined to the five kinds of payment listed in sub-rule (1) — interest, royalty, fees for technical services, dividend and payments on transfer of any capital asset. The residency certificate is required only where the law of the deductee's country provides for issuing one, but the Tax Identification Number requirement has no such let-out; where no such number exists the deductee must give the unique number by which his Government identifies him. Sub-rule (3) is a separate and independent route: it does not require the sub-rule (2) documents at all, but turns on the deductee not being required to apply for PAN under section 262 and the rules prescribed under it. What the rule disapplies is section 397(2)(b)(i) only, so the ordinary rate under the Act and the deductor's other obligations remain.
A company pays fees for technical services to a foreign company that has no Permanent Account Number. Before the payment, the foreign company gives the deductor its name, e-mail id and contact number, its address in its country of residence, a Government-issued residency certificate as its law provides for one, and its Tax Identification Number there. Section 397(2)(b)(i) then does not apply to that payment. Had the same foreign company given only its address and a self-declaration of residence, the higher rate would stand.
A deductor meets it in the documents he collects from a non-resident payee before remitting, and in defending the rate applied in his statement of deduction; the non-resident meets it when asked for a Tax Identification Number and a residency certificate as a condition of the ordinary rate.
a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory, if the law of that country or specified territory provides for issuance of such certificate
The provisions of section 397(2)(b)(i) shall also not apply in respect of payments made to a person being a non-resident, not being a company, or a foreign company, if such person is not required to apply for PAN in view of the provisions of section 262 and rules prescribed therein.
