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India's Income‑tax Act, 2025 in Force: What Cross‑border Payers Must Check Now

By Global Law Experts

– posted 47 minutes ago

Last reviewed, 17 August 2026

At a glance

Effective date. India’s Income‑tax Act, 2025 came into force on 1 April 2026, replacing the Income‑tax Act, 1961 in its entirety.
Key filing forms. Cross‑border payers must now use Form 145 (payer’s statement of tax deducted on non‑resident payments) and Form 146 (certificate issued to the payee), alongside the continuing Form 15CA / 15CB bank pre‑clearance process, all updated to reference the 2025 Act’s section numbering.
Immediate action. Map every outbound and inbound cross‑border payment, verify the correct withholding rate under the consolidated TDS provisions, and update bank instructions, vendor contracts and internal payment‑authorisation workflows before the next quarterly TDS return deadline.

India’s Income‑tax Act, 2025 is now in force. Since 1 April 2026 every cross‑border payment touching India, royalties, fees for technical services, interest, dividends, management charges and reimbursements, falls under a completely restructured statute that consolidates withholding obligations, introduces new reporting forms and resets the procedural framework for treaty‑benefit claims. For in‑house counsel, heads of tax, finance teams and foreign vendors with Indian counterparties, the transition is not academic: every template, bank instruction and vendor agreement that referenced the repealed 1961 Act must be reviewed and, in most cases, rewritten.

This article provides a step‑by‑step compliance checklist, explains the forms and withholding mechanics that cross‑border payers must check now under the Income Tax Act 2025 India framework, and flags the risk areas that demand urgent governance attention.

What Changed: Headline Provisions Cross‑Border Payers Must Note

The Income‑tax Act, 2025 is a wholesale replacement, not a piecemeal amendment, of the prior statute. According to the Press Information Bureau, the Act simplifies language, removes obsolete provisions and consolidates and restructures the legislative framework. For cross‑border payers the structural changes carry immediate operational consequences.

Headline legislative changes relevant to payers

Consolidated TDS framework. Withholding provisions previously scattered across multiple sections of the 1961 Act (Sections 195, 194LC, 194LD and others) have been reorganised under a unified structure. Provisions such as Section 393(2) now serve as a single reference point for the obligation to deduct TDS on non‑residents, reducing the need for cross‑reading between legacy sections.
New reporting architecture. The Income‑tax Rules, 2026, notified on 20 March 2026 and effective from 1 April 2026, prescribe updated forms aligned with the new section numbering. Form 145 replaces earlier payer‑side TDS statements for non‑resident payments; Form 146 replaces the corresponding payee certificate. The Income Tax Department has published FAQs and guidance notes on these forms to assist with the transition.
Digital‑first filing emphasis. The e‑filing portal has been updated to accept the 2025 Act’s TDS return schemas, form templates and compliance‑portal notices. Responding to compliance‑portal queries is now treated as a formal procedural obligation rather than advisory correspondence.
DTAA machinery preserved. The framework for applying Double Taxation Avoidance Agreements remains substantively intact, including the requirement for Tax Residency Certificates (TRCs) as primary evidence. However, all procedural references, the section numbers cited in TRC applications, bank submissions and withholding certificates, must now reflect the 2025 Act.
Continuity of 15CA / 15CB pre‑remittance reporting. The Form 15CA (online information filing) and Form 15CB (chartered accountant certificate) process for bank pre‑clearance of foreign remittances continues under the new regime. The underlying section cross‑references within these forms must cite the 2025 Act rather than the repealed statute; banks may hold or reject remittance instructions that carry outdated references.

The practical upshot for cross‑border payers is direct: every internal template, ERP tax‑engine table and bank instruction that referenced the 1961 Act must be audited and updated, even where the substantive withholding tax India 2026 rate has not changed.

Immediate Compliance Checklist: What Cross‑Border Payers Must Check Now

This is the core action list. Every entity making or receiving a cross‑border payment with an Indian nexus should work through these six priority items before the next quarterly TDS filing deadline.

1. Identify payment types and payee residence status

Catalogue every active cross‑border payment stream: licence fees, royalties, fees for technical services (FTS), management charges, interest, dividends, reimbursements and capital payments.
Confirm each payee’s residence status under the 2025 Act. Non‑resident status triggers the obligation to deduct TDS on non‑residents under the consolidated withholding provisions.
Flag payments that were previously exempt or zero‑rated and verify whether the exemption carries forward under the new section numbering.

2. Withholding rates and DTAA application

Cross‑check the applicable withholding rate for each payment category against the 2025 Act’s rate schedule. Statutory rates for key categories (royalties, FTS, interest) broadly mirror the old Act’s percentages, but the legal basis has shifted to the consolidated provisions.
Determine whether a DTAA applies. Where the treaty rate is lower, it can only be applied if proper documentation, a valid TRC, a completed self‑declaration on the lines of the erstwhile Form 10F, and a payee declaration, is on file before the payment date.
Address gross‑up provisions in contracts: confirm whether vendor agreements allocate the economic cost of withholding to the payer or the payee.

3. Reporting forms and bank pre‑clearance

Verify that the current version of Form 145 is available on the e‑filing portal and that ERP or payroll systems can generate the correct XML/CSV schema.
Confirm the timeline for issuing Form 146 to the payee, typically within the prescribed period after each quarterly TDS return filing.
Check that the authorised dealer bank has updated its Form 15CA / 15CB templates to reference the 2025 Act’s section numbers. A mismatch in statutory citations can cause remittance delays.

4. Contract and invoice checks

Review all active vendor and intercompany agreements for clauses referencing the Income‑tax Act, 1961. Update statutory references to the 2025 Act.
Ensure invoices carry the payee’s PAN (or equivalent tax identification number), the nature of payment and the applicable withholding rate, all of which feed into Form 145 reporting.
Insert or refresh make‑ready clauses requiring payees to provide TRC and treaty‑benefit documentation before each payment milestone.

5. Treasury and bank workflow updates

Issue revised payment‑memo templates that include a mandatory tax sign‑off field confirming the withholding rate, DTAA applicability and form readiness before any remittance instruction is released to the bank.
Coordinate with the authorised dealer bank to confirm that RBI payment and banking‑rule requirements have been reconciled with the Act’s new reporting obligations.
If the treasury uses automated payment platforms, update tax‑engine look‑up tables to reflect the 2025 Act’s rate schedule and section references.

6. Documentation retention and transfer pricing files

Maintain a contemporaneous record of every withholding determination: the statutory provision applied, DTAA article relied upon, TRC copy, Form 145 filed and challan reference.
Cross‑reference transfer pricing documentation, if the cross‑border payment is between associated enterprises, the arm’s‑length price and benchmarking study must support the quantum on which TDS was deducted.
Retain records for a minimum of eight assessment years (consistent with the Act’s record‑retention provisions) to support any future scrutiny or assessment.

Reporting and withholding obligations by payer type

Obligation / Topic	Domestic payer (resident company)	Foreign payer / Non‑resident payee
Withholding (primary rule)	Deduct TDS under the consolidated provision (e.g., Section 393(2)); apply the domestic statutory rate unless a DTAA provides a lower rate and the requisite documentation is on file before payment.	Withholding obligation may attach to the Indian payer or its authorised agent. The foreign payer should confirm whether an agent in India has been designated to withhold and remit TDS.
Reporting form	File Form 145 (payer statement) via the e‑filing portal and the corresponding quarterly TDS return within prescribed deadlines.	Ensure Form 146 (payee certificate) is received from the Indian payer. Provide supporting documents (TRC, declaration) for treaty benefit. Bank to process Form 15CA / 15CB where required.
Treaty relief steps	Collect the payee’s TRC issued by the foreign tax authority, a completed self‑declaration (on the lines of the erstwhile Form 10F) and documentation identifying the specific DTAA article and rate applied.	Provide TRC and required declarations to the Indian payer before each payment. Ensure the correct treaty article and paragraph are cited to avoid disputes on assessment.

Withholding and Reporting Under India’s Income‑tax Act, 2025: Forms, Process and Timelines

Understanding which form to file, who must file it and when is the single most common compliance stumble in cross‑border payments. The 2025 Act’s renumbered forms add a layer of transition risk that payers must manage proactively.

Form 145: purpose, filer and timeline

Form 145 is the prescribed statement that a payer files to report tax deducted at source on payments made to non‑residents. It is filed electronically through the Income Tax Department’s e‑filing portal. The payer, typically the Indian resident company or the non‑resident’s authorised Indian agent, is responsible for filing. Deadlines align with the quarterly TDS return cycle: returns are generally due within the month following the end of each quarter (July, October, January and May). The Income Tax Department’s FAQs on forms under the Income‑tax Rules, 2026 confirm the mapping of form numbers and filing triggers for the transition year. Payers should cross‑verify these dates against any notifications issued under the 2025 Act, as transition‑year adjustments remain possible.

Form 146: certificate to the payee

Form 146 is the certificate of tax deduction issued to the payee (the non‑resident recipient). It serves as the payee’s proof that Indian tax has been withheld and is essential for the payee to claim foreign‑tax credits in its home jurisdiction. The payer must issue Form 146 within the period prescribed by the rules, typically within fifteen days of filing the quarterly TDS return. Delayed issuance can trigger penalties and compromise the payee’s ability to offset Indian withholding against its domestic tax liability.

Form 15CA / 15CB: bank pre‑clearance for cross‑border remittances

The Form 15CA (information to be furnished for payments to non‑residents) and Form 15CB (certificate from a chartered accountant) process remains a critical gate in the bank remittance workflow. Remittances above prescribed thresholds require a CA certificate (15CB) and an online filing (15CA) before the authorised dealer bank releases funds. Under the 2025 Act the substantive requirement continues, but the section references within Forms 15CA and 15CB must cite the new Act’s provisions. Payers should coordinate with their CA and authorised dealer bank to confirm that updated form templates are in use; outdated section numbers can result in the bank rejecting or holding the remittance instruction.

Claiming treaty rates: the TRC procedure

To apply a lower withholding rate under a DTAA, the payer must hold, before the payment date, a valid Tax Residency Certificate issued by the payee’s home‑country tax authority, a completed self‑declaration equivalent to the erstwhile Form 10F, and documentation identifying the specific treaty article relied upon. Retrospective collection of these documents does not protect the payer from short‑deduction proceedings. Once on file, the payer references the treaty rate on Form 145 and the bank submission, and retains copies for the prescribed retention period. For a broader overview of how the new Act reshapes cross‑border obligations, see the GLE overview of the Income‑tax Act, 2025.

Contract and Payment Controls to Implement Now

Updating contracts and payment processes is not optional housekeeping, it is the primary defence against withholding‑tax exposure under the Income Tax Act 2025 India provisions. Industry observers expect the tax authorities to scrutinise the transition period closely, and early compliance signals reduce the likelihood of disputes.

Vendor onboarding and KYC updates

Add the following data points to every vendor‑onboarding checklist: the payee’s PAN or Tax Identification Number, a current TRC if treaty relief is expected, confirmation of the payee’s residential status under the 2025 Act, and a declaration of the nature of services or rights being supplied. These details feed directly into Form 145 and the Form 15CA / 15CB filing and should be refreshed annually or whenever a new contract is signed.

Standard contract clause: withholding gross‑up and indemnity

Ensure every cross‑border agreement contains a clause addressing three points: (a) which party bears the economic cost of Indian withholding tax; (b) an obligation on the payee to provide TRC and supporting declarations within a stated number of business days before each payment; and (c) an indemnity from the payee if a lower treaty rate is applied but subsequently disallowed on assessment. A practical starting point for drafting: “The Payee shall provide a valid Tax Residency Certificate and self‑declaration to the Payer no later than [X] business days before each payment date. If the Payee fails to provide such documentation, the Payer shall withhold at the full domestic statutory rate under the Income‑tax Act, 2025.”

Payment memo and evidence retention

Every outbound remittance instruction should be accompanied by a payment memo recording the invoice reference, nature of payment, withholding rate applied, DTAA article relied upon (if any) and the date the TRC was received. This memo becomes part of the compliance audit trail and supports the payer’s position in any future assessment or transfer‑pricing review.

Risk Areas: Permanent Establishment, Transfer Pricing and Indirect Exposures

Cross‑border payments do not exist in a vacuum. Two structural risks, permanent establishment exposure and transfer pricing adjustments, interact directly with withholding obligations under the 2025 Act, and payers should assess both as part of this compliance refresh.

Permanent establishment triggers

Fixed‑place PE. If the non‑resident payee maintains an office, branch or other fixed place of business in India, income attributable to that PE is taxable beyond the scope of TDS alone. Confirm whether any service arrangement involves local premises or dedicated personnel.
Dependent‑agent PE. If an Indian entity habitually concludes contracts on behalf of the non‑resident, a dependent‑agent PE may be constituted. Review agency and distribution agreements for this risk.
Service PE under DTAA. Several of India’s tax treaties contain a service‑PE clause that triggers taxable presence if personnel are present in India for more than a specified number of days. Cross‑check personnel deployment records against the relevant treaty threshold.

Transfer pricing and indirect tax interactions

Where cross‑border payments flow between associated enterprises, ensure that the transfer pricing study and benchmarking analysis support the payment quantum. A mismatch between the TP documentation and the TDS base can trigger both a TP adjustment and a short‑deduction assessment.
Be alert to Goods and Services Tax (GST) implications on imported services, reverse‑charge GST obligations sit alongside, but are separate from, withholding‑tax compliance. Industry observers expect increased data‑matching between income‑tax and GST filings going forward.
Where the amounts involved are significant or the payment structure is novel, consider applying for an advance ruling to secure certainty on the withholding obligation before the payment is made.

Example Scenarios: How India’s Income‑tax Act, 2025 Applies to Cross‑Border Payments

The following three scenarios illustrate how withholding, form filing and documentation obligations converge in common cross‑border payment situations.

Scenario 1, Software licence (royalty). An Indian company pays ₹1 crore to a US software licensor for the right to use proprietary software. The domestic withholding rate on royalties is 20 per cent (plus applicable surcharge and cess). The India–US DTAA caps royalties at 15 per cent subject to conditions. The Indian payer collects the US company’s TRC, applies 15 per cent withholding (₹15 lakh), files Form 145, issues Form 146 to the payee, and completes Forms 15CA / 15CB before instructing the bank to remit ₹85 lakh.
Scenario 2, Remote consultancy (FTS). An Indian manufacturer pays £200,000 to a UK‑based engineering consultancy for remote technical advisory services. Under the consolidated TDS provisions of the 2025 Act, fees for technical services attract withholding at the applicable domestic rate (typically 10 per cent) or the DTAA rate, whichever is lower. The payer verifies the UK firm’s TRC, applies the treaty rate if beneficial, and reports via Form 145. Because the consultant’s personnel never enter India, there is no service‑PE concern, but the payer documents this conclusion in the payment memo.
Scenario 3, Foreign vendor supplying goods (trade payment). An Indian retailer imports finished goods from a supplier in Vietnam and pays USD 500,000. Payments for goods (as opposed to services or rights) generally do not attract TDS on non‑residents, provided the transaction is a straightforward purchase with no embedded royalty or service component. The payer still completes Form 15CA (Part A for payments below the prescribed threshold without a CA certificate, or Part C with a 15CB certificate for amounts above the threshold) before the bank releases the remittance.

Next Steps and Recommended Governance Checklist

Compliance with the Income‑tax Act, 2025 is not a one‑off exercise. The following 30/60/90‑day plan assigns ownership and builds sustained readiness.

Days 1–30 (Tax team lead). Complete the payment‑mapping exercise. Confirm withholding rates for every active cross‑border payment stream. Update ERP tax‑engine tables and verify Form 145 templates on the e‑filing portal.
Days 31–60 (Legal and procurement). Amend vendor and intercompany contracts to reflect the 2025 Act’s references. Insert or refresh withholding gross‑up, TRC‑provision and indemnity clauses. Brief procurement teams on updated vendor‑onboarding checklists.
Days 61–90 (Treasury and compliance). Conduct a dry‑run TDS filing using the new return schema. Verify bank 15CA / 15CB workflows and section references. Establish a quarterly compliance‑review cadence and designate an owner for monitoring Income Tax Department notifications and rule amendments.

For broader context on how India’s regulatory environment is evolving for financial institutions, see the practical guide to RBI’s 2026 banking rules. Organisations managing compliance‑form transitions across multiple jurisdictions may also find value in the GLE guide to SEC GIS form updates in the Philippines and the Uganda tax changes practical guide as structural models for internal rollouts.

Downloadable resource, one‑page compliance checklist

A printable, one‑page version of the six‑item checklist above is available for distribution to tax, legal and treasury teams. Contact your India tax adviser or use the Global Law Experts lawyer directory to request the checklist and accompanying sample contract clauses.

Conclusion

India’s Income‑tax Act, 2025 is not a future event, it is the law governing every cross‑border payment touching India right now. From 1 April 2026 onward, payers who delay updating their withholding calculations, reporting forms and contract terms face short‑deduction assessments, interest charges, penalty proceedings and bank‑remittance delays. The compliance checklist set out above provides a structured path through the transition: identify payments, confirm rates, update forms, revise contracts and build a sustainable governance cadence. For entities navigating these changes, the Global Law Experts lawyer directory connects businesses with qualified India tax practitioners who can provide jurisdiction‑specific guidance. Background on the Act’s broader impact is available in the GLE overview of the Income‑tax Act, 2025.

With India’s Income‑tax Act, 2025 now in force, the window for cross‑border payers to act without exposure is narrowing, and the time to complete these checks is now.

Need Legal Advice?

This article was produced by Global Law Experts. For specialist advice on this topic, contact DServe Legal at DServe Legal, a member of the Global Law Experts network.

Sources

FAQs

When did the Income‑tax Act, 2025 come into force?

The Income‑tax Act, 2025 came into force on 1 April 2026, as confirmed by the Income Tax Department and the Press Information Bureau. It replaces the Income‑tax Act, 1961 in its entirety.

Which forms should cross‑border payers check first, Form 145 or Form 146?

Start with Form 145, which is the payer’s statement of tax deducted on non‑resident payments. Form 146 is the corresponding certificate issued to the payee. Both must align with the 2025 Act’s section numbering under the Income‑tax Rules, 2026.

Has withholding (TDS) on non‑resident payments changed under the 2025 Act?

The core withholding rates for major payment categories largely mirror the prior rates, but obligations have been consolidated under a unified framework, notably through provisions such as Section 393(2). Payers must now reference the new consolidated section rather than multiple legacy provisions.

Do we still need a Tax Residency Certificate (TRC) to apply DTAA treaty rates?

Yes. The TRC remains the primary documentary evidence for claiming treaty relief under India’s Income‑tax Act, 2025. Without a valid TRC on file before the payment date, the payer must withhold at the full domestic statutory rate.

Is Form 15CA / 15CB still required for bank remittances under the 2025 Act?

Yes. The pre‑remittance reporting process, Form 15CA (online information filing) and Form 15CB (chartered accountant certificate), continues. The forms must now cite the 2025 Act’s section numbers; outdated references to the 1961 Act may cause banks to reject the remittance instruction.

Is it mandatory to respond to notices on the Income Tax Department's compliance portal?

Yes. Notices issued through the compliance portal are treated as formal procedural communications under the 2025 Act. Failure to respond within the stated deadline may result in adverse inferences and potential penalty proceedings.

What immediate controls should treasury teams implement?

Treasury should require a pre‑payment tax sign‑off on every cross‑border remittance instruction, confirming the withholding rate, DTAA applicability, form readiness and TRC status.