What changed
RBI clarified that the undertaking and CA certificate format from CBDT Circular No.10/2002 applies to all remittances to non-residents, not just interest payments. This includes import payments and other trade transactions. The clarification was issued in response to queries from authorized dealers.
What it means for you
Banks must now ensure that every foreign exchange remittance to a non-resident, regardless of purpose, is accompanied by the prescribed undertaking and CA certificate. This increases compliance burden for both banks and remitters, as trade payments previously thought exempt are now covered. Non-compliance could lead to tax deduction issues under Section 195.
What you must do
- Update internal remittance processing checklists to require the CBDT undertaking and CA certificate for all non-resident remittances, including import payments.
- Train staff handling forex transactions to verify the format and completeness of the undertaking and certificate as per CBDT Circular No.10/2002.
- Notify corporate and retail customers about the mandatory documentation for all outward remittances to non-residents.
- Review existing remittance procedures to ensure compliance with Section 195 of the Income Tax Act and Rule 29B of IT Rules.
Who it affects
All Category-I Authorised Dealer banks, Authorised banks handling forex remittances, Corporate and individual remitters making payments to non-residents, Chartered Accountants certifying remittance documents
Does this circular apply to remittances for import of goods?
Yes, the circular explicitly states that the undertaking and CA certificate are required for all remittances to non-residents, including trade transactions such as import payments.
What is the legal basis for this requirement?
The requirement stems from Section 195 of the Income Tax Act read with Rule 29B of the IT Rules, which mandates tax deduction at source on payments to non-residents. The circular is issued under FEMA, 1999.
What happens if a remitter fails to submit the undertaking and certificate?
The authorized dealer should not process the remittance without the prescribed documents, as non-compliance could lead to tax liability issues under Section 195.