When money is sent from India to a non-resident or a foreign company, the Income Tax Department requires certain checks before the payment is made. One of these checks is confirming whether any tax needs to be deducted from the payment.
In many cases, this verification is done by a Chartered Accountant who reviews the details of the payment.
This confirmation is provided through Form 146.
What is Form 146?
Form 146 is a certificate issued by a Chartered Accountant for payments made to a non-resident or a foreign company. Through this form, the CA reviews the payment and confirms whether tax has been deducted at the required rate.
It also confirms that the tax on the payment has been calculated correctly under the Income Tax Act and any relevant Double Taxation Avoidance Agreement (DTAA).
Form 146 is commonly used when filing Form 145, where the details of the Chartered Accountant’s certificate must be reported.
Who needs to obtain it?
You will need to obtain Form 146 if you are making a payment to a non-resident or foreign entity that is taxable in India and you rely on a CA’s certificate to confirm the tax deduction.
So this applies when:
- The amount being sent (or the total amount sent during the tax year) exceeds ₹5,00,000.
- You are filing Part C of Form 145, which requires the details of the CA’s certificate.
Which remittances does it cover?
Form 146 applies to many types of taxable payments made to non-residents. Some of the popular ones include:
- Digital & technical payments: Software purchases, royalties, and fees for technical or included services.
- Professional services: Consulting fees, architectural services, and sales or marketing charges.
- Investment income: Dividends, interest payments, and both long-term and short-term capital gains.
- Business-related payments: AMC charges, equipment rentals, and reimbursement of expenses.
The CA reviews the nature of the payment and confirms whether the remittance is taxable in India and the tax that should be deducted.
When should you submit it?
You must obtain the signed Form 146 from your CA before filing Form 145, since the Unique Document Identification Number (UDIN) generated for this certificate is required while filing Form 145.
After Form 145 is filed, the bank (authorized dealer) will ask for its acknowledgement before processing the foreign currency transfer.
You should also retain a copy of the certificate and the UDIN for your records, as the ITD may use them to verify the taxability of the remittance and any DTAA relief claimed during an assessment or audit.
What is the format of Form 146?
Form 146 captures details regarding the remitter, the recipient, the remittance, and how the payment is taxed. Broadly, the form is divided into the following sections.
1. Participant details
The form first asks for the details of both parties involved in the remittance.
For the remitter (sender), you must provide provide information such as the name, address, PAN, status, residential status, and TAN (if available).
For the remittee (recipient), the form requires their name, address in the country of residence, and their Tax Identification Number (TIN) or a similar tax identifier in that country.
2. Remittance details
The next section captures information about the remittance, including the country to which the payment is made, the currency, and the amount to be remitted. It also requires:
- Bank information, such as IFSC code, BSR code, and the authorised dealer bank handling the transaction
- The nature of remittance must be selected from a list of specified categories such as royalty, dividend, or professional services and specify the purpose code and sub-code prescribed by the Reserve Bank of India (RBI).
3. Details of taxability
One of the most important parts of Form 146 is assessing whether the remittance is taxable in India.
The Chartered Accountant first evaluates the taxability of the payment under the Income Tax Act, without considering any DTAA.
This includes details such as:
- Whether the remittance is chargeable to tax in India
- The section under which it is taxable
- Amount of income chargeable to tax
- Tax liability and applicable TDS rate
This ensures that the remitter deducts tax correctly before making the payment.
4. DTAA relief (if applicable)
If the remitter is claiming relief under a Double Taxation Avoidance Agreement (DTAA), the accountant must also evaluate the taxability under the relevant treaty.
This requires details such as:
- Whether a Tax Residency Certificate (TRC) has been obtained from the remittee
- Relevant DTAA and article applicable to the payment
- Taxable income and tax liability under the DTAA
The form separately considers the taxability of different types of payments under the DTAA, such as:
- Royalties, interest, dividends, or fees for technical services
- Business income
- Capital gains
- Other types of remittances
This helps determine whether a lower tax rate or exemption applies under the treaty.
5. Details of tax deducted at source
The form then records the tax deduction details for the remittance.
This includes the amount of tax deducted at source, the rate at which tax is deducted (either under the Income Tax Act or the DTAA), the actual amount remitted after deduction of tax, and the date of deduction.
These details confirm that the correct tax has been deducted before the remittance is made.
6. Verification by the Chartered Accountant
Finally, the Chartered Accountant issuing the certificate must verify the information provided in the form.
The accountant confirms that they have examined the agreement between the remitter and the remittee (where applicable), along with the relevant documents and books of account used to determine the nature of the remittance and the correct tax deduction.
The accountant must then provide their name, PAN, membership registration number, firm registration number, and UDIN (Unique Document Identification Number).
You can also refer to the official draft of Form 146 we’ve attached below.
Draft Form 146.pdf (300.3 KB)
Questions? Let’s sort them out.