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

Last reviewed, 17 August 2026

India’s Income‑tax Act, 2025 is now in force, having taken effect on 1 April 2026 as confirmed by the Income Tax Department and the Press Information Bureau. The new Act consolidates and replaces the six‑decade‑old Income‑tax Act, 1961, restructuring withholding obligations, introducing updated reporting forms, and reshaping the compliance landscape for every entity that makes or receives cross‑border payments touching India. For in‑house counsel, heads of tax, finance teams and foreign vendors with Indian counterparties, the transition demands immediate, practical action, not merely awareness of the headlines. This article provides a step‑by‑step compliance checklist, explains the forms and withholding mechanics that cross‑border payers must check now, and flags the risk areas that require urgent governance attention.

What Changed: Headline Provisions Cross‑Border Payers Must Note Under the Income Tax Act 2025 India

The Income‑tax Act, 2025 is not a piecemeal amendment. It is a wholesale replacement of the prior statute, and its structural changes carry direct consequences for cross‑border payment flows. Industry observers expect the consolidated architecture to simplify ongoing compliance once teams complete the initial transition, but the short‑term compliance burden is significant.

Headline legislative changes relevant to payers

• Consolidated TDS framework. Withholding provisions that were previously scattered across multiple sections of the 1961 Act have been reorganised. The Act brings TDS on non‑residents under a consolidated structure, notably through provisions such as Section 393(2), creating a single reference point for payer obligations rather than requiring cross‑reading of Sections 195, 194LC, 194LD and others under the old law.
• New reporting architecture. The Act introduces updated prescribed forms, including Form 145 (for the payer’s statement of tax deducted on payments to non‑residents) and Form 146 (the certificate issued to the payee). These replace or supplement earlier form numbers and align with the new section numbering.
• Digital‑first filing emphasis. The Income Tax Department’s e‑filing portal has been updated to accommodate the 2025 Act’s form templates, TDS return schemas and compliance‑portal notices. Responding to compliance portal queries is now treated as a formal procedural step rather than advisory correspondence.
• Preservation of DTAA machinery. The Act retains the framework for applying Double Taxation Avoidance Agreements (DTAAs), including the requirement for Tax Residency Certificates (TRCs) as primary evidence for treaty relief. However, the procedural references and section numbers cited in TRC applications and bank submissions have changed.
• Continuity of 15CA/15CB pre‑remittance reporting. Early indications suggest that the Form 15CA/15CB process for bank pre‑clearance of foreign remittances continues under the new Act, though the underlying section cross‑references within those forms must reflect the 2025 Act’s numbering. Banks are expected to update their templates accordingly.

For cross‑border payers, the practical upshot is clear: every internal template, bank instruction, vendor agreement and TDS return that referenced the 1961 Act must be reviewed and updated, even where the substantive tax 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. Each item is broken into sub‑steps that tax, legal and treasury teams can assign and track.

1. Identify payment types and payee residence status

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

2. Withholding rates and basis

• Cross‑check the applicable withholding tax rate for each payment category under the 2025 Act. Statutory rates for non‑resident payments (royalties, FTS, interest) may mirror the old Act’s percentages, but the legal basis has shifted.
• Determine whether a DTAA applies. If so, compare the treaty rate with the domestic statutory rate and apply whichever is more beneficial to the payee, but only where proper documentation (TRC, Form 10F equivalent, payee declaration) is on file before payment.
• Address gross‑up provisions in contracts: confirm whether your vendor agreements allocate the economic cost of withholding tax India 2026 obligations to payer or payee.

3. Reporting forms and bank pre‑clearance

• Confirm the version of Form 145 available on the Income Tax Department’s e‑filing portal and ensure your ERP or payroll system can generate the correct XML/CSV schema.
• Verify whether Form 146 (payee certificate) must be issued within the prescribed time limit and update your issuance workflow.
• Check that your authorised dealer bank has updated its Form 15CA/15CB templates to reference the 2025 Act’s section numbers. A mismatch in section 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 identification), the nature of payment and the applicable withholding rate, details the payer needs for Form 145 reporting.
• Add or update 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 require a tax sign‑off field confirming the withholding rate, DTAA applicability and form readiness before any remittance instruction is released to the bank.
• Coordinate with your authorised dealer bank to confirm that RBI payment and banking‑rule requirements have been reconciled with the Act’s new reporting obligations.
• If your 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.

Reporting and withholding obligations by payer type

Withholding and Reporting: Forms, Process and Timelines Under the Income‑tax Act, 2025

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 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, May). Payers should cross‑verify these dates against any notifications issued under the 2025 Act, as transition‑year adjustments are possible.

Form 146: what it captures and who issues it

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 claiming foreign‑tax credits in the payee’s 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 create difficulties for the payee’s foreign‑tax‑credit claim.

Form 15CA/15CB: bank‑remittance pre‑clearance

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. Under the 2025 Act, the substantive requirement, that remittances above prescribed thresholds need a CA certificate (15CB) and an online filing (15CA) before the authorised dealer bank releases funds, continues. However, payers must ensure the section references within Forms 15CA and 15CB cite the 2025 Act’s provisions rather than the repealed 1961 Act. Banks may reject or hold remittances where outdated section numbers appear.

Claiming treaty rates: the TRC procedure

To apply a lower withholding rate under a DTAA, the payer must hold a valid Tax Residency Certificate (TRC) issued by the payee’s home‑country tax authority, a completed self‑declaration on the lines of the erstwhile Form 10F, and documentation identifying the specific treaty article relied upon. These documents must be obtained before the payment date, retrospective collection 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.

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 new Act. Early indications suggest that the tax authorities will scrutinise the transition period closely.

Vendor onboarding and KYC updates

Add the following to your standard vendor‑onboarding checklist: request for the payee’s PAN (or Tax Identification Number), a current TRC if treaty relief is expected, confirmation of the payee’s residential status, and a declaration of the nature of services or rights being supplied. These data points feed directly into Form 145 and the 15CA/15CB filing.

Standard contract clause: withholding gross‑up and indemnity

Ensure every cross‑border agreement contains a clause addressing: (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 days before each payment; and (c) an indemnity from the payee if a lower treaty rate is applied but subsequently disallowed on assessment. Sample language might read: “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.”

Payment memo and evidence retention

Every outbound remittance instruction should be accompanied by a payment memo recording the invoice reference, the nature of payment, the withholding rate applied, the DTAA article (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 tax vacuum. Two structural risks, permanent establishment (PE) exposure and transfer pricing adjustments, interact directly with withholding obligations under the 2025 Act, and cross‑border 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 in India 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.

Transfer pricing and indirect taxes

• 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.

Example Scenarios: How the Income‑tax Act, 2025 Applies in Practice for 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, 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 prescribed thresholds without a CA certificate, or Part C with a 15CB certificate for larger sums) 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 ensures 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 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 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 changes.

For broader context on how India’s regulatory environment is evolving for financial institutions, see the practical guide to RBI’s 2026 banking rules, which addresses complementary payment and reporting requirements.

Conclusion

The Income‑tax Act, 2025 is not a future event, it is in force now, and every cross‑border payment touching India is governed by its provisions from 1 April 2026 onwards. Payers who delay updating their withholding calculations, reporting forms and contract terms risk short‑deduction assessments, interest charges, penalty proceedings and bank‑remittance delays. The compliance checklist 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 on the Income‑tax Act, 2025 and its cross‑border implications.

Background on the Act’s broader impact can be found in the GLE overview of the Income‑tax Act, 2025.

Sources

1. Income Tax Department, Income Tax Act, 2025 (PDF)
2. Income Tax Department, Income Tax Act 2025 Landing Page
3. Press Information Bureau (PIB), Press Note on Act
4. BDO Global, India Key Tax Developments and Cross‑Border Implications
5. Acuity Law, Comprehensive Compliance Guide for MNCs
6. Mynd Integrated Solutions, Implementing the New Income Tax Act 2025: Impact on TDS Compliance
7. OECD, Tax Policy and Treaty Guidance
8. Global Law Experts, Income‑Tax Act of 2025 in India