Rule 209: Certificate for receiving interest and other sums without TDS (Form 126)
Rule 209 allows two classes of payee that operate in India through a branch to apply in Form No. 126 for a certificate under section 395(1) authorising them to receive certain income or sums without deduction of tax. The first class is a banking company or insurer that is not a domestic company. The second is any other person carrying on business or profession in India through a branch. Each must meet conditions in the Table, including a filing record and no tax default. The certificate is valid for the tax year it specifies.
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Rule 209 - Application by payee for certificate authorising receipt of interest and other sums without deduction of tax
(1) Any person, as mentioned in column B of the following Table, entitled to receive any interest or any other sum of the nature specified in section 393(2) [Table: Sl. No. 17], on fulfilment of the conditions specified in column C thereof, may make an application in Form No. 126, for grant of a certificate under section 395(1) authorising him to receive without deduction of tax, any such income or sum as specified in column D thereof:
Table Sl. No. Person Conditions Nature of income or sum A B C D 1. Banking company or an insurer (as defined in section (2)(9)(d) of Insurance Act, 1938 (4 of 1938)), which is not a domestic company, and which carries on operations in India through a branch. (a) The person concerned has been regularly assessed to income-tax in India and has furnished the returns of income for last five tax years for which such returns became due on or before the date on which the application under this rule is made; (b) he is not in default or deemed to be in default in respect of any tax (including advance tax and tax payable under section 266), interest, penalty, fine, or any other sum payable under the Act; and (c) the interest or other sum is receivable by the branches on their own account and not on behalf of its head office or any branch situated outside India, or any other person. Any income by way of interest, not being interest on securities (other than interest payable on securities referred to in section 393(4) [Table: Sl. No. 6]), or any other sum, not being dividends. 2. Any person other than the person referred to in Sl. No. 1 who carries on a business or profession in India through a branch. (a) The conditions specified in Sl. No. 1; (b) he has been carrying on business or profession in India continuously for a period of not less than five years immediately preceding the date of the application; and (c) the value of the fixed assets in India of such business or profession as shown in his books of account for the tax year, which ended immediately before the date of the application, or where the accounts in respect of such tax year have not been made up before the said date, the tax year immediately preceding that year, exceeds fifty lakhs rupees. Any sum not being interest or dividends. (2) The certificate granted by the Assessing Officer under section 395(1) shall be valid for the tax year specified therein, unless it is cancelled by him at any time before the expiry of the said tax year.
(3) An application for a fresh certificate may be made, if required, after the expiry of validity of the earlier certificate, or within three months before the expiry thereof.
Rule breakdown
What the rule does
A person in column B who is entitled to receive interest or another sum of the nature in section 393(2) [Table: Sl. No. 17] may, on meeting the column C conditions, apply in Form No. 126 for a certificate under section 395(1) to receive the column D income or sum without deduction of tax.
Section 393(2) [Table: Sl. No. 17] of the Act covers interest (other than interest in serial numbers 2 to 5) or any other sum chargeable under the Act, other than salary, paid to a non-resident (not being a company) or a foreign company.
Row 1: foreign banks and insurers with an Indian branch
Applies to a banking company or insurer that is not a domestic company and operates in India through a branch.
Conditions: regularly assessed in India with returns furnished for the last five tax years that fell due by the application date; not in default or deemed default for any tax, interest, penalty, fine or other sum under the Act; and the interest or sum is received by the branch on its own account, not on behalf of its head office, a foreign branch or any other person.
Covered income: interest other than interest on securities (except interest on securities in section 393(4) [Table: Sl. No. 6]) and any other sum, but not dividends.
Row 2: other branch businesses
Applies to any other person carrying on business or profession in India through a branch.
Conditions: the row 1 conditions; at least five years of continuous business or profession in India immediately before the application; and fixed assets in India, per the books for the last completed tax year (or the year before, if those accounts are not made up), above fifty lakh rupees.
Covered income: any sum other than interest or dividends.
Validity and renewal — Rule 209(2) and (3)
The certificate is valid for the tax year specified in it unless the Assessing Officer cancels it earlier.
A fresh application may be made after the earlier certificate expires, or within three months before it expires.
Key takeaways
Form No. 126
The application for a no-deduction certificate under section 395(1) is in Form No. 126.
Branch operations only
Both rows require operations or business in India through a branch.
Renew within three months before expiry
A fresh application can be made within three months before the certificate expires.
Practical checklist
- Check that returns for the last five tax years that fell due have been furnished.
- Clear any outstanding tax, interest, penalty or other sum before applying.
- For row 2, check the five-year continuity and fixed-asset value in the books.
Avoid
- Do not apply for sums received on behalf of the head office or a foreign branch.
- Do not assume the certificate covers dividends.
FAQs
Who can apply under Rule 209?
A foreign banking company or insurer operating in India through a branch (row 1), or any other person carrying on business or profession in India through a branch (row 2), if they meet the Table conditions.
Does the certificate cover dividends?
No. Row 1 excludes dividends, and row 2 excludes both interest and dividends.
How long is the certificate valid?
For the tax year specified in it, unless the Assessing Officer cancels it before the end of that year.
When can a fresh certificate be sought?
After the earlier certificate expires, or within three months before it expires.
Glossary
- Form No. 126
- Application for a certificate to receive interest and other sums without deduction of tax.
- Domestic company
- A company that is not a foreign company; row 1 applies only to banks and insurers that are not domestic companies.