New TDS Framework For International Payments

 There are certain changes in India's tax rules for TDS on payments made to non-residents. The Income Tax Act, 2025 ('ITA 2025') replaces the Income Tax Act, 1961, introducing new forms and enhanced compliance obligations for all cross-border remittances. We have prepared a detailed Note on the subject which is enclosed for your reference.

Key Highlights:

1. New Forms: Form 15CA is replaced by Form 145 (Parts A/B/C/D) and Form 15CB is replaced by Form 146 (Accountant's Certificate), effective 1 April 2026 under Section 393 of ITA 2025.
2. Tax Residency Certificate (TRC): A valid TRC from the non-resident remains mandatory. Importantly, the TRC certificate number must now be explicitly reported in Form 146 (Item 28(b)), unlike the earlier tick-box confirmation.
3. Form 41 replaces Form 10F:   Under the old regime, electronic - Form 10F was filed only if the TRC was incomplete. Under the new regime, electronic   Form 41 is mandatory even when the TRC is complete. Additionally, the non-resident must now provide an Indian communication address, Indian contact number, and the verifying person must hold an Indian PAN.
4. Foreign TIN is now Mandatory: The Tax Identification Number (TIN) of the non-resident payee in their country of residence is compulsory in both Form 145 and Form 146. Absence of TIN triggers penal TDS rates under Section 397(2)(c).
5. Structured Income Classification: Form 146 now requires every payment to be classified into one of four categories: Passive Income (Royalty/FTS/Interest/Dividend not connected with PE), Business Income/PE-connected, Capital Gains, or Other/Residual. This classification directly determines the applicable DTAA article and TDS rate.
6. RBI Purpose Code Alignment: Both the Tax Nature Code and the RBI Purpose Code must now be reported in Form 145. Mismatches will trigger automated scrutiny.
7. Grossing-Up:   If the contract is structured on a 'net of tax' basis, Form 146 Item 26 must be marked 'YES'. Failure to do so may trigger an immediate tax demand.
8. Penalty Exposure: Non-filing or inaccurate filing of Form 145 attracts a penalty of up to ₹1,00,000 per remittance (Section 462, ITA 2025). Inaccurate certification in Form 146 by a CA attracts a penalty of up to ₹10,000 per certificate (Section 463, ITA 2025).

Immediate Action Points:

• Map all recurring foreign vendor payments to the 65 new nature categories as per new forms.
• Proactively collect TINs and fresh TRCs from all non-resident payees.
• Obtain 'No PE' declarations from non-resident vendors where applicable.
• Review all contracts for 'net of tax' clauses 
• Reconcile RBI Purpose Codes with tax nature codes.
• Obtain electronic Form 41 from non-resident payees ahead of April 2026.