Form 145 and Form 146 Filing Guide

Every foreign payment to a non-resident passes through a compliance gateway under the Income Tax Act — and that gateway is Form 145 [Old: Form 15CA] and Form 146 [Old: Form 15CB]. Whether you are buying property from an NRI, paying rent to a non-resident landlord, or remitting fees to a foreign consultant, understanding Section 393(2) [Old: Section 195] TDS and the Form 145/146 framework is critical. Get it wrong, and your bank will simply refuse to process the remittance.

Under the Income Tax Act, 2025, all TDS provisions have been consolidated into a single section — Section 393. Sub-section (2) specifically covers TDS on payments to non-residents and foreign companies, replacing the old Section 195 of the Income Tax Act, 1961.

Here is what you need to know:

• Section 393(1) covers TDS on payments to residents (replacing old Sections 193–194IA). Salary TDS is separately under Section 392 [Old: Section 192].
• Section 393(2) covers TDS on payments to non-residents — this is the provision relevant to Form 145/146 compliance.

The Section 393(2) rate table is contained in the Tenth Schedule, Table 2 of the IT Act, 2025, with 17 serial numbers covering all categories of payments to non-residents. Sl. No. 17 is the catch-all for "any other sum chargeable under this Act, not being income chargeable under the head 'Salaries'" — at "rates in force."

The core principle: Any person making a payment to a non-resident or foreign company must deduct TDS at the applicable rate before making the payment. Form 145 [Old: Form 15CA] and Form 146 [Old: Form 15CB] are the compliance mechanism that proves this TDS obligation has been correctly handled.

Without a properly filed Form 145 (with Form 146 where required), your Authorised Dealer bank will not process the remittance. This is a statutory prerequisite under Rule 220 [Old: Rule 37BB] of the Income Tax Rules, 2026.

The following table summarises the key TDS rates under Section 393(2) for common payment types to non-residents. These are rates without DTAA benefit — if a Double Taxation Avoidance Agreement under Section 159 [Old: Section 90] provides a lower rate, the lower rate applies.

This is the most common — and most costly — scenario where Form 145/146 compliance matters. If you are buying property from an NRI, pay close attention.

Who Deducts TDS?

The buyer deducts TDS — even if the buyer is a resident individual with no prior tax obligations. The buyer must obtain a TAN (Tax Deduction Account Number) via Form 49B specifically for this transaction. If there are joint buyers, each buyer needs a separate TAN.

LTCG Rate — 12.5% Without Indexation

Since 23 July 2024 (Finance Act 2024), the LTCG rate on immovable property is a flat 12.5% without indexation, replacing the old 20% with indexation.

NRIs Do NOT Get Grandfathering Benefit

This is a critical point many get wrong. For resident taxpayers selling properties acquired before 23 July 2024, a transitional provision allows choosing between the old regime (20% with indexation) and new regime (12.5% without indexation) — whichever is lower.

NRIs are excluded from this grandfathering benefit. Regardless of when the property was acquired, NRIs are taxed at 12.5% flat without indexation for all sales on or after 23 July 2024.

Practical impact: For NRIs who purchased properties at low cost many years ago, the removal of indexation significantly increases the effective tax burden. A property bought in 2005 for ₹20 lakh and sold in 2026 for ₹1.5 crore would have had a much lower taxable gain with indexation (indexed cost would be ~₹65–70 lakh). Without indexation, the full ₹1.3 crore gain is taxed at 12.5%.

The Critical Problem: TDS on Full Sale Consideration

Without a lower TDS certificate under Section 395 [Old: Section 197], the buyer must deduct TDS on the entire sale consideration — not on the capital gain alone. This creates an enormous cash-flow burden.

Worked Example — NRI Property Sale

Scenario: NRI sells a flat in Mumbai for ₹1,50,00,000 (₹1.5 crore), purchased 8 years ago for ₹80,00,000.

Capital Gains Exemptions Available to NRIs

• Section 82 [Old: Section 54]: Reinvest in one residential house in India within specified time; exemption up to ₹10 crore
• Section 85 [Old: Section 54EC]: Invest in NHAI/REC bonds within 6 months of sale; 5-year lock-in, ₹50 lakh limit per FY

Both exemptions can be claimed simultaneously, subject to their respective conditions.

Compliance Timeline

• TDS must be deposited by the 7th of the following month using Challan ITNS-281
• Buyer files Form 144 [Old: Form 27Q] (quarterly TDS return for NR payments) — deadlines: Q1 by 31 Jul, Q2 by 31 Oct, Q3 by 31 Jan, Q4 by 31 May
• Issue Form 131 [Old: Form 16A] to seller within 15 days of Form 144 due date
• Form 145/146 is MANDATORY for the NRI to repatriate sale proceeds
• Failure consequence: Section 398 [Old: Section 201] — buyer deemed assessee in default (see Penalties section below)

The lower TDS certificate is the single most impactful compliance tool for NRIs. As our worked example demonstrates, it can free up ₹15–20 lakh or more.

New Act Structure

• Section 395(1): The NRI (payee) applies for lower/nil TDS certificate — AO specifies the reduced rate
• Section 395(2): The payer (buyer) applies for determination of the non-resident proportion
• Section 395(3): Lower TCS certificate — a new provision for reducing TCS on LRS remittances

How to Apply

Documents Required

• Sale agreement or purchase deed with stamp duty value
• Original purchase deed and proof of cost of acquisition
• Capital gains computation statement (without indexation for sales post-23 July 2024)
• Investment proof under Section 82 [Old: Section 54] or Section 85 [Old: Section 54EC] if claiming exemption
• Bank statements showing source of purchase funds
• PAN card copy

Form 145 [Old: Form 15CA] is the remitter's declaration filed on the income tax portal under Rule 220 [Old: Rule 37BB]. It informs the Income Tax Department about the foreign remittance and TDS compliance.

Form 146 [Old: Form 15CB] is the Chartered Accountant's certificate confirming that the correct TDS has been determined and deducted. It is uploaded by a practising CA under Rule 220 with a valid UDIN (Unique Document Identification Number) and digital signature.

When are they mandatory? Any remittance to a non-resident that is chargeable to tax under the IT Act, 2025. Form 146 is additionally required when the remittance exceeds ₹5 lakh (cumulative in the tax year) and the remitter does not have an AO certificate.

Form 145 has four parts. Selecting the correct part is the first — and most common — point of error:

33 Exempt Purpose Codes — No Form 145 Required

Rule 220(3)(c) [Old: Rule 37BB(3)(c)] lists 33 RBI purpose codes that are fully exempt from the Form 145 requirement. These include:

• Capital account: Indian investment abroad in equity, debt, subsidiaries, real estate (S0001–S0005), loans to NRs (S0011)
• Imports: Advance payments, invoice settlements, diplomatic imports (S0101–S0104, S0190)
• Travel: Business travel, BTQ, pilgrimage, medical, education (S0301–S0305)
• Insurance: Life, freight, general insurance premiums (S0601–S0603)
• Personal: Family maintenance (S1301), donations (S1303), gifts (S1302), payment/refund of taxes (S1306)

Not all foreign remittances attract TDS. The distinction is critical:

Payments NOT Attracting TDS Under Section 393(2)

• Import of goods (covered under customs, not Section 393(2))
• LRS remittances for personal purposes (education, travel, gifts) — these attract TCS under Section 394, not TDS
• Payments to residents (covered under Section 393(1))
• Payments falling under the 33 exempt purpose codes

Payments Attracting TDS Under Section 393(2)

• Professional/consulting fees to a foreign consultant
• Royalty for software/intellectual property
• Interest on External Commercial Borrowing (ECB)
• Rent to an NRI landlord
• Property purchase from an NRI
• Commission to a foreign agent
• Fees for technical services to a non-resident
• Any other income chargeable to tax in India

TCS vs TDS — A Common Confusion

Prerequisites

Before filing, the remitter must assign the CA on the portal:

This assignment is required once per financial year.

Filing Sequence — Form 146 First, Then Form 145

Here is the approach under Rule 220 [Old: Rule 37BB]:

1. Remitter and Remittee Details

Name, PAN, address, TIN of the non-resident. The remittee's country of residence must match the DTAA country being claimed.

2. Remittance Details

Amount (INR and foreign currency), RBI purpose code, nature of payment. The purpose code must match Form A2 — mismatch is the #1 cause of bank rejections.

3. Tax Determination

4. DTAA Verification

• Verify valid Tax Residency Certificate (TRC) from the NRI's home country
• Confirm Form 41 [Old: Form 10F] has been furnished — under the new rules, Form 41 is mandatory even when the TRC contains all prescribed details
• Check for Permanent Establishment (PE) in India — a PE can change the applicable DTAA article entirely
• Reference the specific DTAA article and rate
• Check for Make Available clause in FTS articles (present in India-US, India-UK treaties) — if FTS does not "make available" technical knowledge to the payer, it may not be taxable
• Check Most Favoured Nation (MFN) clause if applicable

5. Forms 42 and 43 (TRC Process)

Under Rule 75 [Old: Rule 21AB], Form 42 is the TRC application and Form 43 is the TRC issued by the AO. Both are essential for DTAA benefit claims.

Part Selection

Refer to the decision tree above. The most common error is selecting Part C when Part B applies (or vice versa).

Key Fields

• Amount of remittance: INR and foreign currency
• Purpose code: Must match Form A2 — mismatch is the #1 rejection cause
• Payee details: Name, address, country, TIN of the non-resident
• TDS details: Challan number, BSR code, date of deposit, TDS amount under Section 393(2)
• Form 146 ARN: For Part C — links your declaration to the CA certificate

Submission

File electronically via DSC or EVC. Download the acknowledged form and submit to your AD bank before the remittance is processed.

Critical Naming Change

The old "Form 67" (Foreign Tax Credit claim) has been renumbered to Form 44 under Rule 76 [Old: Rule 128] of the IT Rules, 2026.

What Is Form 44?

Form 44 is the declaration for claiming credit of taxes paid in a foreign country — the Foreign Tax Credit (FTC). Any Indian resident who paid tax abroad on income also taxable in India needs this form.

The Connection to Form 145/146

Form 146 determines the TDS obligation on the outgoing payment. Form 44 is the other side — claiming credit for taxes already paid abroad.

Filing Requirements

• Filed electronically on the income tax portal
• Must be filed within 12 months from the end of the tax year in which the foreign income was earned
• CA verification mandatory if FTC exceeds ₹1 lakh or if the applicant is a company

FTC Computation

FTC = lower of (foreign tax paid on doubly-taxed income) or (Indian tax attributable to that income)

If no DTAA exists, unilateral relief under Section 160 [Old: Section 91] provides credit at the lower of Indian or foreign rate.

These errors repeat most often:

1. Wrong Part selection in Form 145 — Filing Part A for payments that push cumulative FY total above ₹5 lakh. Banks monitor cumulative limits and will freeze the payment.
2. Part D for taxable payments — Filing under Part D ("not taxable") for payments that are chargeable to tax, to avoid TDS. This invites penalty under Section 412 and expense disallowance under Section 35(b)(ii) [Old: Section 40(a)(i)].
3. Purpose code mismatch — The RBI purpose code in Form 145 must exactly match Form A2. Mismatch is the #1 cause of bank rejections.
4. Data discrepancy between Form 145 and Form 146 — Different exchange rates, beneficiary name spelling, or amounts between the two forms trigger automated rejections.
5. Filing Form 145 before Form 146 — Part C requires the Form 146 ARN. Filing out of sequence is automatically rejected.
6. Buyer not obtaining TAN — For NRI property purchases, each buyer must get a TAN. Many individuals don't realise this.
7. TDS on gross consideration — Deducting TDS on the full sale amount instead of applying for a Section 395 lower certificate — this blocks lakhs unnecessarily.
8. Late filing of Form 44 [Old: Form 67] — Missing the 12-month FTC deadline means total loss of credit.
9. Missing TRC + Form 41 [Old: Form 10F] — Claiming DTAA benefit without these documents means disallowance at assessment.
10. Confusing Form 44 with new Form 67 — Old Form 67 (FTC) = now Form 44. New Form 67 = MAT/AMT audit report — completely unrelated.

The consequences of failing to deduct TDS or file Form 145/146 are severe:

Deemed Assessee in Default — Section 398(1)

A person who fails to deduct TDS under Section 393(2) is deemed an assessee in default for the tax amount.

Interest Liability — Section 398(3)

Additional Consequences

• 6-year limitation period — AO can pass orders within 6 years from end of the tax year
• Charge on assets — The tax demand creates a charge on the defaulter's assets
• Prosecution under Section 476 [Old: Section 276B] — Wilful failure to deposit TDS can result in rigorous imprisonment from 3 months to 7 years with fine
• Expense disallowance under Section 35(b)(ii) [Old: Section 40(a)(i)] — For business payers, the payment to the NRI is disallowed as a business expense in the year of payment if TDS was not deducted. The expense is allowed only in the year TDS is actually deducted and deposited.
• Penalty under Section 412 — Up to the full amount of tax in arrears

*This article is part of our comprehensive Liberalised Remittance Scheme (LRS) Guide. Related articles: TCS on Foreign Remittance | Form A2 Guide | FEMA Penalties | NRI Returning to India | *DTAA & Tax Planning