Some of this work can be done by any tax adviser. One part of it, by law, can only be signed by a chartered accountant. Here is who does what, and what to look for before you appoint anyone.
For a payment from India to a non-resident, the advisory work splits into three parts and the answer differs for each.
Certification is reserved. Form 15CB, the certificate that accompanies most remittances to a non-resident, can only be issued by a chartered accountant. That is not a matter of preference. The form requires a CA's signature and membership number, and no other professional can provide it.
Advisory is open, but specialised. Determining whether a payment is chargeable to tax in India, at what rate, and under which treaty article, can be done by a chartered accountant, an advocate or an in-house tax team. In practice it needs someone who works with treaties regularly, because the characterisation question is where the money is.
Litigation is shared. If the department disputes your position, a CA can appear through adjudication, the CIT(A) and the ITAT. Only an advocate can appear in the High Court.
So the practical answer for most companies: a chartered accountant with cross-border experience, because the same person can advise on the position, certify the remittance, and defend it if challenged.
Withholding on a foreign payment sounds like a rate lookup. It is not. Four questions have to be answered in sequence, and getting any one wrong is expensive.
Is the payment chargeable to tax in India at all? Under Section 195 the obligation to deduct arises only where the sum is chargeable to tax in India. Many payments are not, and over-deduction is as much a failure of advice as under-deduction, because your vendor will ask for it back.
How is it characterised? Royalty, fees for technical services, business profits, capital gains or interest all lead to different outcomes. This is where almost every dispute begins. Our case study on withholding tax for cloud services under the India-US treaty works through exactly this analysis and concludes no withholding was required, which shows how much rides on characterisation rather than rate.
Does a treaty reduce the rate, and have you earned the right to use it? Treaty benefit is not automatic. You generally need a valid Tax Residency Certificate, Form 10F, and a no-permanent-establishment declaration from the recipient, held on file before you remit, not assembled after a notice arrives.
Does the recipient have a PAN? Without one, the higher rate under Section 206AA can override the treaty rate in many cases, which turns a 10 per cent deduction into something considerably worse.
Form 15CB is the chartered accountant's certificate. It records the nature of the remittance, the taxability analysis, the treaty article relied on and the rate applied. It is the document the department reads first when it wants to know why you deducted what you deducted, so the reasoning in it should be able to stand on its own two years later.
Form 15CA is the remitter's declaration, filed on the income tax portal. Depending on the amount and nature of the payment, one of its parts requires the 15CB certificate to be uploaded first.
A Section 195(2) application is the route where you believe only part of the payment is chargeable and want the officer to determine the appropriate proportion. Form 13 / Section 197 covers a lower or nil deduction certificate.
Advising on which of these routes fits, rather than defaulting to full deduction to be safe, is the difference between competent and merely cautious advice.
Three consequences, and they stack.
Disallowance of the expense. Where tax was deductible on a payment to a non-resident and was not deducted or paid, the expenditure can be disallowed under Section 40(a)(i). On a large payment that costs far more than the tax itself.
Interest and treatment as an assessee-in-default. Under Section 201, failure to deduct or deposit attracts interest and can make the payer liable for the tax it never withheld.
Penalty. Separate penalty provisions apply to failure to deduct.
The pattern worth noticing: the exposure sits with you, the payer, not with the foreign recipient. That is why the quality of the pre-remittance analysis matters more here than in almost any other compliance task.
If the recipient is a related party, you have two problems, not one.
The withholding question asks whether the payment is chargeable and at what rate. The transfer pricing question asks whether the amount itself is arm's length. A management fee or royalty to a group company can survive the first test and fail the second, and departments routinely attack both.
If your cross-border payments are intra-group, read them alongside our guides to transfer pricing study report applicability and building a transfer pricing defence file. Where GST also bites on the same internal transaction, our note on intercompany transactions and dual exposure under TP and GST sets out the overlap.
Withholding runs both ways, and companies often handle the outbound side well and the inbound side badly.
Where tax has been withheld on your income in another country, relief in India depends on the treaty and on filing Form 67 correctly and on time. Our guide on when and how to file Form 67 for foreign tax credits covers the mechanics, and the wider position on tax on foreign source income of a resident Indian explains when the income is taxable here at all. Both turn on residential status, which should be settled before anything else.
Treating 15CB as a formality. A certificate issued without a documented analysis is a liability, not a protection.
Collecting treaty documents after the remittance. A TRC obtained once the notice has arrived carries far less weight than one held on file before payment.
Deducting at the maximum rate to be safe. It is not safe. It strains the vendor relationship, may breach your contract, and creates a refund problem for a party outside India who has little incentive to help you fix it.
No. Form 15CB requires certification by a chartered accountant. An advocate can advise on the underlying tax position but cannot issue the certificate.
They can file Form 15CA and manage the process, but Form 15CB must come from a chartered accountant, and the characterisation analysis usually benefits from external review.
No. It depends on the nature and amount of the remittance, and certain payments are exempt from the requirement. Confirm the position for each payment type rather than applying one rule to all.
The higher rate under Section 206AA may apply and can override the treaty rate in many situations. Raise it with the recipient before remitting.
Primarily you, as the payer. The expense can be disallowed, interest runs, and you can be treated as an assessee-in-default.
Yes, through assessment, the CIT(A) and the ITAT. For a High Court matter you need an advocate, and we would tell you so, as explained in our note on writ versus appeal in tax litigation.
Send us the agreement and the invoice before you remit. We will give you a written characterisation, the treaty position, the documents to collect from the recipient, and the Form 15CB to support it. DSRV and Co LLP advises Indian companies and multinational groups on withholding on cross-border payments, treaty positions, Section 195(2) and lower deduction applications, and defends the position through assessment and appeal as part of our tax litigation and advisory practice.
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