Wrong Classification of Remittance

People often make mistakes in judging whether a foreign payment is taxable. This generally occurs when they neglect:

1. The nature of the service provided
2. If a Double Taxation Avoidance Agreement (DTAA) applies
3. Whether the foreign entity has a Permanent Establishment (PE) in India.

Tax Deducted at Source (TDS) shortfall may lead to penalties under Section 271-I.

As per this section, the Penalty for failure to furnish information or furnishing inaccurate information under section 195 could lead to a penalty of Rs. 100,000.

Missing TRC or Form 10F

One cannot claim Double Taxation Avoidance Agreement (DTAA) relief without a valid Tax Residency Certificate (TRC) and Form 10F (filed online if the TRC lacks details).

In case we make a payment to a non-resident or foreign company without a valid TRC, a higher TDS rate would apply. For example, 20% plus cess and surcharge in case of royalty or fees for technical service.

One has to either deduct TDS or gross up the Payment. If we gross up the payment, the cost will increase.

In case you do not deduct TDS, the following consequences will take place:

• Disallowance of expense under Sec 40(a)(i) to Remitter, if TDS is not deducted.
• Applicability of Interest on Late Payment/Deduction of TDS
• The taxpayer may be deemed as assessee in default.

Non Declaration on PE Status

You must get a written confirmation from the foreign party about whether they have a PE in India or not.

Tax deduction completely changes once the Non-Resident/ FC declares PE in India.

Form 15CB Without Documents

Sometimes, Form 15CB is issued without checking important documents like:

1. Contracts or invoices
2. TRC (Tax Residency Certificate), Form 10F, and PE declaration
3. DTAA analysis (to see if tax treaty benefits apply)

Risk: Can cause problems during an audit for the client, and responsibility may fall on the CA.

Confusion Between Taxable and Chargeable

Even if tax is not payable because of the Double Taxation Avoidance Agreement (DTAA), Form 15CA/CB is still needed if income is chargeable under the Act.

Not taking 15CB/15CA will lead to Non-compliance with reporting duties.

Key Things Auditors Check

1. Matching details between Form 15CA/CB, accounting books, and bank transfers
2. Clear reasons if tax is not deducted (i.e., “Not Chargeable”)
3. Complete set of supporting documents
4. Correct details of the person sending and receiving the money
5. Timely e-filing

Essential Standard Operating Procedure (SOP) You Should Have:

• A clear chart showing which payments are taxable (Taxability matrix)
• Ready-made templates for tax treaty (DTAA) documents
• Standard formats for Tax Residency Certificates (TRC) and No Permanent Establishment (No-PE) declarations
• A checklist to ensure bank compliance

If you are treating Form 15CB/ 15CA as a routine work, it is time to review and improve your process.