Form 145 and Form 146 Explained: Common Errors in Foreign Remittances
INTRODUCTION
Foreign remittances are a routine part of modern business, whether they involve professional services, software, royalties, or other cross-border transactions. To ensure these payments comply with the Income Tax Act and FEMA, taxpayers must follow the applicable reporting and certification requirements.
Under the Income Tax Rules, 2026, Form 145 and Form 146 have replaced the earlier Forms 15CA and 15CB. However, errors in reporting, tax assessment, or documentation can result in delays, penalties, and compliance concerns. This blog covers the most common mistakes and ways to avoid them.
Understanding Form 145 and Form 146
Before looking at the common errors, it is essential to understand the purpose of these two forms.
Form 145 is a declaration submitted by the person making the foreign remittance. It includes details about the remitter, recipient, nature of the payment, applicable tax provisions, and TDS deducted, wherever applicable.
Form 146 is a certificate issued by a Chartered Accountant after reviewing the remittance, checking the taxability of the payment, determining the applicable TDS provisions, and certifying compliance with the Income Tax Act.
Together, these forms enable the Income Tax Department to monitor cross-border transactions and ensure that the appropriate tax is deducted wherever required.
WHY ACCURATE FOREIGN REMITTANCE COMPLIANCE MATTERS
Compliance with foreign remittance requirements involves more than simply submitting a statutory form. Incorrect information can create issues for both the remitter and the recipient.
Non-compliance may lead to:
• Delays in processing remittances by authorised dealer banks
• Interest on short deduction or non-deduction of TDS
• Penalties under the Income Tax Act
• Greater scrutiny by tax authorities
• Complications during future assessments
• Additional compliance expenses arising from revised filings
A minor reporting error at the initial stage can develop into a costly problem during subsequent tax assessments or audits.
COMMON ERRORS IN FORM 145 AND FORM 146
1. Incorrect Classification of the Nature of Remittance
A common error is choosing the wrong purpose code or providing an inaccurate description of the payment.
Taxpayers often classify payments generally as professional services or consultancy without properly reviewing the actual nature of the transaction.
2. Assuming Every Foreign Payment Is Taxable
A frequent misconception is that every payment made to a non-resident is subject to TDS.
In practice, tax is deducted only when the income is chargeable to tax in India.
The taxability of a payment may depend on factors such as:
• Place where the services are provided
• Nature of the income
• Residential status of the recipient
• Relevant provisions of the Income Tax Act
• Applicable DTAA provisions
Unnecessary tax deduction can create complications for both the remitter and the foreign recipient.
3. Ignoring DTAA Benefits
India has entered into Double Taxation Avoidance Agreements with several countries to prevent the same income from being taxed twice.
Despite this, many businesses apply domestic tax rates without checking whether the applicable DTAA provides a lower tax rate or exemption.
Overlooking treaty provisions may result in:
• Excessive tax deduction
• Refund claims by foreign recipients
• Additional documentation requirements during assessment
However, DTAA benefits can be claimed only when the prescribed conditions are satisfied, including the submission of required documents by the non-resident.
4. Applying the Wrong TDS Rate
Using an incorrect TDS rate is one of the major compliance risks associated with foreign remittances.
The applicable rate depends on various factors, including:
• Nature of the income
• Relevant section of the Income Tax Act
• Provisions of the DTAA
• Availability of supporting documents
• Applicable surcharge and cess
Even a small mistake in determining the rate can lead to short deduction, interest liability, and penalties.
5. Filing Forms with Incorrect Information
Simple data-entry mistakes in applications can also cause delays in processing foreign remittances.
Common errors include:
• Incorrect PAN details
• Incorrect Tax Identification Number of the recipient
• Wrong country of residence
• Errors in the remittance amount
• Mismatch between the agreement and information provided in the form
• Incorrect bank details
Although these may seem like minor errors, they can result in the need for revised or fresh filings.
6. Obtaining Form 146 After Initiating the Remittance
Some businesses initiate the remittance process before approaching the Chartered Accountant for certification.
This can create practical challenges because the certificate is intended to support the tax determination before the remittance is completed.
Delayed certification may lead to:
• Delays in bank processing
• Requests for additional documentation
• Resubmission of forms
• Compliance-related complications
7. Inadequate Documentation
Proper documentation is the foundation of foreign remittance compliance. Businesses sometimes retain only invoices while overlooking other supporting documents that may be required during an assessment.
Important documents generally include:
• Invoice
• Agreement or contract
• Tax Residency Certificate, where applicable
• Form 10F, where required
• No Permanent Establishment declaration, wherever applicable
• Chartered Accountant working papers
• TDS computation
• Bank advice and remittance records
Maintaining complete records can significantly minimise compliance risks.
8. Treating Similar Transactions Identically
Businesses often assume that if one payment to a particular vendor was made without TDS, all subsequent payments to the same vendor will receive the same tax treatment.
This approach can be risky because the taxability of each transaction depends on its specific facts and circumstances.
Changes in the services provided, contractual terms, recipient status, or applicable tax provisions can change the applicable tax treatment.
Therefore, each foreign remittance should be assessed separately instead of relying solely on previous transactions.
DELAYED FILING OF FORM 145
Many taxpayers prioritise completing the payment and address compliance requirements afterward. This can lead to delayed filing of Form 145 and create avoidable complications.
Delayed compliance may result in:
• Delays in processing the remittance
• Additional queries from authorised dealer banks
• Greater risk of notices from the tax department
• Interest and penalties, wherever applicable
CONSEQUENCES OF NON-COMPLIANCE
Failure to comply with foreign remittance requirements can result in both financial and legal consequences. Even genuine errors may attract scrutiny when adequate supporting documentation is unavailable.
Potential consequences include:
• Interest on short deduction or non-deduction of TDS
• Penalties under the Income Tax Act
• Delays in processing foreign remittances
• Higher compliance costs
• Income tax notices and assessments
• Challenges during tax audits
Timely compliance helps minimise the risk of penalties and provides greater confidence during departmental assessments and bank verification.
CONCLUSION
Accurate compliance with Form 145 and Form 146 is essential for ensuring smooth and legally compliant foreign remittances under the Income Tax Rules, 2026. Proper tax determination, timely reporting, and complete documentation help prevent delays, penalties, and unnecessary scrutiny while supporting hassle-free cross-border transactions.
We assist businesses, professionals, and individuals with end-to-end foreign remittance compliance, including taxability analysis, TDS determination, preparation of Form 145, certification under Form 146, and other regulatory requirements. Our team helps clients navigate evolving tax provisions while maintaining timely and accurate compliance for every foreign remittance.
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Frequently Asked Questions (FAQs)
1. What are Form 145 and Form 146 in foreign remittances?
Form 145 and Form 146 are prescribed forms associated with certain foreign remittance transactions and related tax compliance requirements. Their applicability depends on the nature of the remittance and the provisions applicable to the taxpayer.
2. What are the most common errors in Form 145 and Form 146?
Common errors include incorrect taxpayer details, inaccurate remittance information, wrong tax calculations, incomplete documentation, incorrect recipient details, and failure to obtain the required certification within the prescribed process.
3. Can incorrect information in Form 145 or Form 146 delay a foreign remittance?
Yes. Errors or inconsistencies in the forms and supporting documents can lead to additional queries, requests for clarification, or delays in processing the remittance by the bank or other relevant authorities.
