15CA-15CB Foreign Remittance Filing Guide: Section 195 & Rule 37BB Compliance

Legislative Framework: Section 195 and Rule 37BB

Section 195 of the Income Tax Act, 1961 is the primary provision governing TDS on payments to non-residents. It mandates that any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act shall, at the time of credit or payment (whichever is earlier), deduct income tax thereon at the rates in force. The key elements of Section 195 that every remitter must understand are as follows.

Section 195(1): The base obligation — deduct TDS on any sum chargeable to tax. The Supreme Court in GE India Technology Centre Pvt. Ltd. v. CIT (2010) 327 ITR 456 clarified that TDS under Section 195 is required only on the portion of the payment that is chargeable to tax in India, not on the entire gross amount. This means if a payment has both taxable and non-taxable components, TDS applies only to the taxable portion.

Section 195(2): Where the payer considers that the whole amount is not chargeable to tax, they may apply to the Assessing Officer for determination of the appropriate proportion. The AO issues an order specifying the portion on which TDS is to be deducted. If you have a Section 195(2) order, you file Part C of Form 15CA (not Part B), and Form 15CB is not required.

Section 195(3): The payee (non-resident) can apply for a nil/lower deduction certificate if their income is not likely to be chargeable to tax. This certificate, once issued, allows the payer to remit without TDS or at a lower rate.

Section 195(6): Empowers the CBDT to prescribe the form and manner in which information regarding payments to non-residents must be furnished. This is the statutory basis for Rule 37BB and Forms 15CA/15CB.

Rule 37BB (substituted by Notification No. 93/2015 dated 16 December 2015, effective 1 April 2016) prescribes the detailed procedure. It specifies: (a) the list of payments exempt from 15CA/15CB requirements (listed in the amended Rule); (b) the threshold of ₹5 lakh below which only Part A of 15CA is needed; (c) the requirement for CA certification in Form 15CB when Part B applies; and (d) the timelines and modalities for electronic filing.

The Four Parts of Form 15CA — Which Part Applies to You?

Part A: Remittance Below ₹5 Lakh

If the aggregate of remittances to a particular non-resident during the financial year does not exceed ₹5 lakh, the remitter files Part A of Form 15CA. No CA certificate (Form 15CB) is required. The remitter self-declares the nature of the payment, TDS details, and the applicable rate. This is the simplest filing. However, the ₹5 lakh threshold is per payee per financial year — so if you have already remitted ₹3 lakh to a payee and are now sending ₹3 lakh more, the aggregate exceeds ₹5 lakh, and you must obtain Form 15CB for the second remittance.

Part B: Taxable Remittance Above ₹5 Lakh with 15CB

This is the most common scenario for business payments. The aggregate remittance exceeds ₹5 lakh, the payment is chargeable to tax in India (not in the exempted list), and the remitter has obtained Form 15CB from a CA. Part B of 15CA references the 15CB UDIN and captures the CA-certified TDS rate. The AD bank verifies the 15CA Part B acknowledgement before processing the remittance.

Part C: Order/Certificate Under Section 195(2)/195(3)/197

If the remitter has obtained an order from the Assessing Officer under Section 195(2) determining the taxable proportion, or the payee has furnished a certificate under Section 195(3) or Section 197 for nil/lower deduction, Part C of 15CA is filed. The order/certificate number is referenced. Form 15CB is not required in this case because the AO has already determined the tax position.

Part D: Exempt Remittances

Rule 37BB specifies a list of 33 nature of payments that are exempt from the 15CA-15CB requirement. These include: imports of goods (covered by customs), donations to foreign charities, travel expenses, medical expenses, education fees, gifts up to ₹7 lakh, remittances under LRS for permitted capital account transactions (subject to conditions), and salary payments where TDS is deducted under Section 192. For these, Part D of 15CA is filed — a simple declaration without 15CB.

A critical distinction that causes confusion: import of goods is exempt under Part D, but import of services is NOT exempt. Software licence payments, consultancy fees, management fees — all of these require Part B filing with 15CB if above ₹5 lakh. We regularly see clients who assume that because their goods imports do not require 15CB, their service payments are also exempt. This error can result in penalties under Section 271-I.

Step-by-Step Filing Process

Step 1: Determine the Nature of Payment and Applicable TDS Rate

Before initiating the remittance, classify the payment accurately. The nature of payment determines both the TDS rate and the applicable DTAA article. Common classifications include:

• Royalty (Section 9(1)(vi)): Payment for use of or right to use any copyright, patent, trademark, design, model, plan, secret formula, process, or similar property. TDS rate: 10% under the Income Tax Act (for payments to countries with which India has a DTAA). Without DTAA: 20%.
• Fees for Technical Services (FTS) (Section 9(1)(vii)): Payment for managerial, technical, or consultancy services. Domestic rate: 10% (with DTAA) or 20% (without DTAA). Many DTAAs — notably the India-US DTAA — do not have a separate FTS article, which means FTS is taxable only if the service provider has a Permanent Establishment in India.
• Business Income (Article 7 DTAA): Not taxable in India unless the non-resident has a PE. If no PE, TDS rate is nil (subject to TRC and Form 10F).
• Interest (Section 194LC/195): TDS at 5% for ECB interest (Section 194LC), 20% otherwise (without PAN: 20% under Section 206AA).
• Dividend: TDS at rates specified under the applicable DTAA (typically 10-15%).

Step 2: Obtain Tax Residency Certificate (TRC) and Form 10F

If claiming DTAA benefit (lower rate or nil rate), the non-resident payee must provide: (a) a Tax Residency Certificate from the tax authority of their country of residence, and (b) Form 10F (self-declaration containing details not already in the TRC — name, status, nationality, tax identification number, period of residential status, and address). Without both TRC and Form 10F, the CA cannot certify the DTAA rate in Form 15CB, and the domestic rate under the Income Tax Act applies.

Common practical issue: many US companies provide an IRS Form 6166 as their TRC. This is acceptable. However, Form 10F must still be filed separately — it is an Indian form, not a US form. Since April 2022, Form 10F must be filed electronically on the Income Tax e-filing portal. The non-resident (or the Indian payer on their behalf, with a valid PAN or TIN-based login) must file Form 10F online before the CA can issue 15CB.

Step 3: CA Issues Form 15CB on the E-Filing Portal

The Chartered Accountant logs into the e-filing portal, navigates to Forms > Form 15CB, and enters the required details. Key fields include: name and address of the remitter and remittee, country of remittance, nature of remittance (select from dropdown), amount in foreign currency and INR, whether payment is chargeable to tax, applicable section and rate, DTAA country and article, TRC details, and the CA’s observations/comments on taxability.

Upon submission, the portal generates a UDIN-linked 15CB. The CA must also log the UDIN on the ICAI UDIN portal within the prescribed timeline. An important practical point: the 15CB must be issued BEFORE the 15CA is filed, because the 15CA Part B requires the 15CB acknowledgement number.

Step 4: Remitter Files Form 15CA Part B

The remitter (or their authorised representative) logs into the e-filing portal, navigates to Forms > Form 15CA, selects Part B, and enters: remittance details, the 15CB acknowledgement number, TDS details (challan number, BSR code, date of deposit), and bank details. Upon successful submission, an acknowledgement number is generated. This acknowledgement is provided to the AD bank along with the TDS challan.

Step 5: Submit to AD Bank and Process Remittance

The AD bank verifies: (a) 15CA acknowledgement, (b) TDS challan matching the amount declared, (c) FEMA compliance (purpose code, LRS limits if applicable), and (d) any RBI reporting requirements (e.g., FLA return). Only after this verification is the SWIFT transfer initiated. The bank retains the 15CA-15CB documents for their records and for RBI inspection.

DTAA Treaty Analysis: The Heart of Form 15CB

The most substantive part of the 15CB exercise is the DTAA analysis. India has comprehensive DTAAs with over 90 countries. The CA must examine:

1. Characterisation of income: Is the payment royalty, FTS, business income, interest, or dividend? The characterisation under the DTAA may differ from the Income Tax Act. For example, the India-US DTAA defines “royalties” in Article 12 to include payments for the use of industrial, commercial, or scientific equipment — but the India-UK DTAA’s definition of royalties in Article 13 is narrower and excludes equipment royalties in certain circumstances.

2. Most Favoured Nation (MFN) clause: Some DTAAs (e.g., India-France, India-Netherlands, India-Sweden) contain an MFN clause that allows India to apply the lower rate from a subsequent DTAA with an OECD member. However, the Supreme Court in Assessing Officer v. Nestlé SA (2023) held that the MFN clause does not operate automatically — it requires a separate notification by the Indian government. This significantly impacts TDS rates on dividends and royalties to countries with MFN clauses.

3. Beneficial ownership: The CA must verify that the payee is the beneficial owner of the income, not merely a conduit or agent. CBDT Circular No. 3/2022 reinforces the beneficial ownership test for DTAA claims. If a holding company in a DTAA-favourable jurisdiction is interposed solely to obtain treaty benefits, the treaty benefits may be denied under the Limitation on Benefits (LOB) or Principal Purpose Test (PPT) provisions.

4. Permanent Establishment (PE) analysis: For business income and FTS (under DTAAs that do not have a separate FTS article, such as India-US), taxability depends on whether the non-resident has a PE in India. The CA must examine whether the non-resident has a fixed place PE, dependent agent PE, or service PE in India. This requires obtaining factual declarations from the non-resident about their India presence.

Common Errors and How to Avoid Them

Error 1: Incorrect Nature of Payment Code

The 15CA form uses RBI purpose codes. Selecting the wrong purpose code creates a mismatch between the 15CA declaration and the AD bank’s FEMA reporting. For instance, using purpose code S0305 (Business and management consultancy) when the payment is actually S0301 (Computer services — software) changes the tax characterisation. Computer software payments may qualify as business income (not taxable without PE) while management consultancy may be FTS (taxable at 10%). We maintain a mapping table of purpose codes to nature-of-payment classifications to avoid this error.

Error 2: Not Checking the ₹5 Lakh Aggregate Threshold

The ₹5 lakh threshold is per payee per financial year, on an aggregate basis. If a company makes monthly payments of ₹60,000 to a foreign consultant, it crosses ₹5 lakh in the ninth month. The first eight months required only Part A; the ninth month onwards requires Part B with 15CB. Failure to track the running aggregate and switch from Part A to Part B at the threshold is a common compliance gap.

Error 3: Missing or Expired TRC

A TRC is typically valid for one financial year. If the remitter claims DTAA benefit using a TRC from the prior year, the 15CB certification is on shaky ground. The CA must verify TRC validity for the year of remittance. We send TRC renewal reminders to our clients’ foreign payees 60 days before the financial year-end.

Error 4: Not Filing Form 10F Electronically

Since April 2022, CBDT mandates electronic filing of Form 10F. Many non-residents, especially small vendors, are unaware of this requirement. If the non-resident does not have a PAN, they must apply for one (or use the e-filing portal’s facility for non-PAN entities in certain cases). At our practice, we assist foreign payees in obtaining PAN and filing Form 10F electronically to ensure the DTAA claim is procedurally compliant.

Error 5: Grossing Up TDS Incorrectly

When the contract provides for net-of-tax payment (the Indian payer bears the TDS), the payer must gross up the payment to arrive at the correct TDS amount. The grossing-up formula is: Gross Amount = Net Amount / (1 – TDS Rate). For example, if the net payment is USD 10,000 and TDS rate is 10%, the gross amount is USD 11,111.11, and TDS is USD 1,111.11. Many 15CB filings incorrectly compute TDS on the net amount rather than the grossed-up amount, resulting in short deduction and interest under Section 201(1A).

Penalties and Consequences of Non-Compliance

Section 271-I — Penalty for failure to furnish information: ₹1,00,000 per remittance for failure to file Form 15CA or for furnishing inaccurate information. This penalty is in addition to TDS default consequences.

Section 201(1) — Deemed assessee in default: If the payer fails to deduct TDS or deducts at a lower rate, they are deemed an assessee in default for the shortfall. The payer must pay the shortfall amount plus interest.

Section 201(1A) — Interest on late/short deduction: Interest at 1% per month (or part of month) from the date of deduction to the date of actual deduction, and 1.5% per month from the date of deduction to the date of deposit into the government account.

Section 40(a)(i) — Disallowance of expenditure: If TDS is not deducted on a payment to a non-resident, the entire expenditure is disallowed in the payer’s income tax computation for that financial year. The disallowance is reversed in the year in which TDS is subsequently deducted and deposited. This is often the most significant consequence — a ₹1 crore software licence payment disallowed means additional tax of ₹25-30 lakhs (at applicable corporate tax rate) in the year of default.

FEMA implications: While 15CA-15CB is an Income Tax requirement, the AD bank uses this information for FEMA compliance as well. If the 15CA purpose code does not match the bank’s records, the remittance may be flagged for FEMA compounding.

Specific Payment Types: Detailed Analysis

Software Payments

The Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471 held that payment for use of copyrighted software (without transfer of copyright) is not “royalty” under the India-US DTAA. This means standard software licence purchases from US vendors are business income, taxable only if the vendor has a PE in India. However, the Income Tax Act’s definition of royalty (amended in 2012 to include computer software) is broader. The DTAA overrides the domestic law for non-residents from treaty countries. For non-treaty countries, the domestic rate of 10% applies. The CA issuing 15CB must carefully analyse whether the software payment involves (a) a copyright transfer, (b) a copyrighted article, or (c) a customised software development service — each has different tax treatment.

Cloud Computing and SaaS Payments

CBDT Circular No. 17/2020 clarified that payments for cloud computing services (IaaS, PaaS, SaaS) are not royalty under most DTAAs because the customer does not have access to, or control over, the underlying software — they merely use the output. Such payments are business income, taxable only if the cloud provider has a PE in India. This applies to payments for AWS, Azure, Google Cloud, Salesforce, and similar services. However, if the SaaS arrangement involves a right to reproduce, modify, or redistribute the software, the payment may be characterised as royalty. We examine the End User Licence Agreement (EULA) in every SaaS 15CB certification.

Payments to Foreign Employees on Deputation

When a foreign group company deputes employees to the Indian subsidiary, the reimbursement of salary costs by the Indian entity to the foreign entity requires 15CA-15CB analysis. If the deputed employee is a deemed employee of the Indian entity (acting under its control and supervision), the reimbursement is salary reimbursement, and TDS is deducted under Section 192 on the employee’s salary (not under Section 195 on the reimbursement). The 15CA is filed under Part D (salary TDS already deducted). However, if the arrangement is characterised as a service provision (the foreign entity provides manpower services), then the payment is FTS, and TDS under Section 195 applies. This characterisation depends on the substance of the deputation agreement.

Commission to Foreign Agents

Commission paid to a non-resident agent for services rendered outside India is a frequent compliance question. If the foreign agent operates entirely outside India, solicits orders abroad, and the services are rendered and utilised outside India, the commission may not be taxable in India — the source of income is outside India. However, this position requires careful analysis of (a) where the services are rendered, (b) the place of accrual/receipt, and (c) the relevant DTAA provisions. The CA must document this analysis in the 15CB.

Revised and Corrected Filings

If an error is discovered in a filed 15CA, the Income Tax e-filing portal does not currently allow revision of 15CA. The procedure is to file a fresh 15CA with the correct details and inform the AD bank to disregard the earlier filing. For 15CB errors, the CA must issue a revised 15CB with a new UDIN. At our practice, we maintain a pre-submission review checklist covering 27 data points to minimise the need for corrections.

For past-year remittances where 15CA-15CB was not filed, the Income Tax Department has periodically issued enabling notifications to allow delayed filing. The payer should file the delayed 15CA-15CB proactively, deposit any TDS shortfall with interest, and consider filing a compounding application to avoid Section 271-I penalty. We assist clients in regularising past non-compliance through a structured remediation process — filing delayed forms, computing interest, and representing before the AO if penalty proceedings are initiated.

Cross-References: FEMA Valuation for Related-Party Remittances

When the foreign remittance is to a related party (e.g., payment to a foreign holding company for management services, software, or brand royalty), the FEMA valuation requirements and transfer pricing provisions under Section 92 interact with the 15CA-15CB process. The CA issuing 15CB must verify that the payment is at arm’s length. If the transfer pricing study shows that the payment exceeds the arm’s length price, TDS must still be deducted on the entire payment, but the Indian entity’s deduction under Section 37 will be restricted to the arm’s length price under Section 92.

For FDI-related share pricing, if an Indian company is issuing shares to a non-resident and the share application money is received as an inward remittance, the 15CA-15CB process does not apply (share subscription is a capital account transaction, not an income payment). However, if the shares are being bought back or if dividends are being paid to non-resident shareholders, 15CA-15CB is required for the dividend remittance.

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