Foreign Remittances Under Income Tax Scanner: What Taxpayers and Professionals Need to Know
Foreign remittances are increasingly coming under the scrutiny of the Income Tax Department. A recent nationwide verification exercise involving suspicious foreign remittances highlights the importance of maintaining proper documentation, correctly determining taxability, and complying with applicable reporting and TDS requirements.
According to the update shared by Taxla Services, the exercise covers 394 entities and 36 professionals, including entities located in land-border States. The focus reportedly includes shell entities, large foreign remittances despite low or no reported turnover, and certifications relating to foreign remittances. Professionals involved in issuing tax certificates have also been advised to exercise due care, diligence and professional judgement.
This development is an important reminder that foreign remittances should not be treated merely as banking transactions. Every cross-border payment can have income-tax, TDS, documentation and reporting implications depending on its nature.
Important: The information below is intended for general awareness and should not be considered a substitute for transaction-specific professional advice.
What Are Foreign Remittances?
A foreign remittance generally refers to money transferred from India to a person, business or entity outside India.
Businesses may make foreign payments for several legitimate purposes, including:
- Import of goods
- Software and technology services
- Professional and consultancy services
- Advertising and marketing services
- Royalty payments
- Technical services
- Subscription payments
- Cloud and digital services
- Interest payments
- Commission
- Franchise or licensing fees
- Other business-related services
A foreign remittance by itself does not mean that there is any wrongdoing. However, the tax treatment of the payment and the documentation supporting the transaction are extremely important.
The Income Tax Department's current framework requires information and, in applicable cases, certification concerning payments to non-residents or foreign companies.
Why Are Foreign Remittances Coming Under Increased Scrutiny?
The recent verification exercise demonstrates the Department's increasing focus on transactions that may not appear consistent with the financial profile of the taxpayer.
For example, a business reporting very low turnover but making substantial foreign payments may attract questions regarding:
- Source of funds
- Nature and purpose of the payment
- Actual recipient
- Commercial necessity of the transaction
- Taxability in India
- Applicable TDS
- Documentation supporting the payment
- Whether the transaction is genuine
- Whether the payment has been correctly reported in the taxpayer's books
Similarly, transactions involving entities that appear to have limited business activity may receive additional attention.
The reported exercise covers 394 entities and 36 professionals, with 117 entities reportedly located in land-border States. The scrutiny also reportedly extends to certain Form 15CB/Form 146 certifications.
This reinforces an important principle: the documentation and tax analysis behind a foreign remittance should be as strong as the payment itself.
Form 15CA and Form 15CB: Why Do They Matter?
Under the earlier Income-tax Act framework, Form 15CA was used by the remitter to provide information relating to payments made to a non-resident or foreign company.
In specified circumstances, Form 15CB was required from a Chartered Accountant to certify the taxability and applicable TDS details.
The Income Tax Department explains that Form 15CB involves examination of the remittance with regard to chargeability provisions, including relevant provisions of the Income-tax Act and applicable Double Taxation Avoidance Agreement (DTAA) provisions.
Under the Income Tax Act, 2025, the corresponding forms are Form 145 and Form 146. The Income Tax Department states that Form 145 replaces Form 15CA, while Form 146 corresponds to the earlier Form 15CB.
Therefore, businesses making foreign payments during the current tax framework need to understand which provisions and forms apply to their specific transaction.
What Is Form 146?
Form 146 is the new equivalent of Form 15CB under the Income Tax Act, 2025.
The Income Tax Department states that Form 146 is an accountant's certificate for certain taxable payments to a non-resident or foreign company where the payment or aggregate of payments exceeds ₹5 lakh during the tax year, subject to the applicable conditions.
The form requires examination of important aspects such as:
- Remitter details
- Recipient details
- Nature of remittance
- Amount being remitted
- Taxability under the Income-tax Act
- DTAA implications
- TDS requirements
- Certification and verification
This means that certification is not simply a procedural formality. The underlying transaction needs to be properly examined.
Form 145 and Foreign Remittances
Form 145 is the new form corresponding to the earlier Form 15CA.
It is used for furnishing information concerning payments to a non-resident or foreign company. The Income Tax Department states that Form 145 is to be filed for each applicable remittance before the money is sent.
Form 145 has different parts depending on the nature and taxability of the remittance.
Broadly, the framework considers situations involving:
- Taxable remittances within the applicable threshold
- Taxable remittances exceeding the threshold where an Assessing Officer's certificate/order has been obtained
- Taxable remittances exceeding the threshold where a CA certificate in Form 146 has been obtained
- Remittances that are not chargeable to tax
The exact applicability should be determined based on the facts of the transaction and the provisions in force.
What Should Businesses Maintain Before Making a Foreign Payment?
One of the most important lessons from increased scrutiny is the need for a complete audit trail.
Businesses making foreign remittances should maintain documents such as:
1. Agreement or Contract
Maintain the underlying agreement, purchase order, engagement letter or service contract with the foreign party.
2. Invoice
The invoice should clearly explain the nature of goods or services being provided.
3. Proof of Actual Services or Supply
Where applicable, retain evidence demonstrating that the goods were supplied or services were actually received.
4. Bank Records
Maintain the relevant bank statement, remittance advice and transaction reference details.
5. Taxability Analysis
Determine whether the payment is taxable in India before processing the remittance.
6. TDS Working
Where the payment is taxable, examine the applicable withholding tax requirements.
7. DTAA Analysis
If the recipient is located in a country with which India has a Double Taxation Avoidance Agreement, the treaty provisions may need to be examined.
8. Relevant Income-Tax Forms
Ensure that the appropriate forms and certificates are completed and filed wherever applicable.
9. Accounting Records
The payment should be properly recorded in the books of accounts with an appropriate description and supporting documents.
10. Commercial Rationale
The business should be able to explain why the payment was made and how it relates to its business activities.
Why Professional Due Diligence Is Important
The latest scrutiny also has implications for professionals involved in foreign remittance certifications.
A Chartered Accountant issuing a certificate relating to a foreign remittance should not rely solely on information provided by the client without appropriate examination.
The professional should consider relevant aspects such as:
- Identity of the remitter
- Identity and status of the recipient
- Nature of payment
- Supporting agreement
- Invoice details
- Taxability
- Applicable TDS provisions
- DTAA provisions
- Previous transactions, where relevant
- Supporting financial and commercial documents
- Consistency between the payment and the taxpayer's business activities
The Income Tax Department's Form 146 guidance itself requires certification of details concerning the remitter, recipient, remittance, taxability, DTAA and TDS.
Therefore, professional judgement and adequate documentation are essential.
What Should Businesses Do If Their Foreign Remittances Are Genuine?
Businesses should not panic simply because a transaction involves a foreign party.
Legitimate international transactions are a normal part of modern business. However, businesses should ensure that every transaction is properly documented and tax-compliant.
A practical approach is to create a foreign-remittance compliance checklist:
Before payment:
✔ Identify the foreign recipient
✔ Review the agreement/invoice
✔ Determine the nature of payment
✔ Check taxability in India
✔ Examine DTAA applicability
✔ Determine TDS requirements
✔ Identify the applicable reporting form
✔ Obtain professional certification wherever required
At the time of payment:
✔ File applicable forms
✔ Deduct and deposit TDS where applicable
✔ Maintain bank/remittance records
✔ Ensure the payment matches the supporting documents
After payment:
✔ Record the transaction correctly in the books
✔ Maintain certificates and acknowledgements
✔ Preserve agreements, invoices and correspondence
✔ Reconcile the payment with accounting and tax records
This systematic approach can significantly improve the taxpayer's ability to respond to future queries.
Foreign Remittances and Tax Compliance: A Practical Warning
A common mistake is to assume that because a foreign payment has been processed through a bank, all tax requirements have automatically been satisfied.
Banking approval and income-tax compliance are different matters.
A bank may process a remittance based on the information and documents provided, while the Income Tax Department may subsequently examine the taxability, TDS compliance, reporting and genuineness of the transaction.
Therefore, businesses should complete the tax analysis before initiating the remittance rather than trying to reconstruct the documentation after receiving a query.
What Does This Mean for Businesses in India?
The recent development is a reminder that cross-border transactions require stronger compliance discipline.
Businesses making regular international payments should consider conducting a review of their previous and ongoing remittances.
The review can cover:
- Foreign vendors
- Overseas consultants
- Software subscriptions
- Royalty arrangements
- Technical service providers
- Marketing and advertising payments
- Commission payments
- Interest payments
- Related-party transactions
- Other payments to non-residents
Particular attention should be given to transactions where the amount is significant or the taxability is not straightforward.
Conclusion
The Income Tax Department's reported nationwide verification exercise concerning suspicious foreign remittances highlights the growing importance of transparency, documentation and professional tax compliance.
With 394 entities and 36 professionals reportedly covered, businesses and tax professionals should treat foreign remittance compliance as an important part of their overall tax risk-management process.
For remitters, the key message is simple: a genuine transaction should also be a well-documented and correctly reported transaction.
Businesses should carefully examine the nature of every foreign payment, determine its taxability, consider applicable DTAA provisions, comply with TDS requirements and use the appropriate reporting forms.
For remittances under the current Income Tax Act, 2025 framework, businesses should also understand the transition from Form 15CA/15CB to Form 145/146. The Income Tax Department confirms that Form 145 and Form 146 are the corresponding forms under the new framework.
At a time when cross-border transactions are receiving increased attention, proactive compliance is far better than reactive compliance.
If your business makes payments to overseas vendors, consultants, service providers or other non-residents, professional review of the transaction before remittance can help identify potential tax and documentation issues early.
Need Assistance With Foreign Remittance & Tax Compliance?
Taxla Services Pvt. Ltd. can assist businesses with income-tax compliance, foreign remittance documentation, tax analysis, TDS-related requirements and related professional support.
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