Form explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Form No. 34 is the accountant's report that supports the deduction for additional employee cost; Form No. 35 is the accountant's report that supports the deduction for income of an Offshore Banking Unit or a unit of an International Financial Services Centre. This guide explains both as printed in the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026.
Rule 68 says the accountant's report that section 146(3)(c) requires "along with the return of income" is in Form No. 34. Rule 69 says the report required by section 147(4)(a) is in Form No. 35. Rule 69 prints no time limit; the section itself says the report is submitted along with the return. In both cases the accountant must be one defined in section 515(3)(b), and the accountant signs the verification.
The sections behind the forms
Section 146 of the Income-tax Act, 2025 allows a deduction of 30% of additional employee cost incurred in the course of a business, for three consecutive tax years beginning with the year in which the employment is provided. The deduction is lost if the assessee does not furnish the accountant's report "before the specified date as referred to in section 63, giving the particulars in the report, as may be prescribed". The post on section 146 explains the conditions. Sub-section (5) defines "additional employee cost", "additional employee" and "emoluments", and Note 3 of Form No. 34 sends the reader to those definitions.
Section 147 allows a deduction in respect of income of a scheduled bank or foreign bank with an Offshore Banking Unit in a Special Economic Zone and of a unit of an International Financial Services Centre. Sub-section (4) allows it only if the assessee submits with the return of income a report from an accountant certifying the correctness of the claim, and a copy of the permission obtained under the Banking Regulation Act, 1949 or the permission or registration under the International Financial Services Centres Authority Act, 2019. Those two laws are named in Form No. 35; check them where relevant. The detail is in the post on section 147.
The rules are covered in rules 68 to 72 on accountant reports and certificates. Rule 68 and rule 69 each name only the form; neither adds a separate time limit. Whether a business can claim either deduction at all is a planning question, and our tax planning advisory work starts there.
Form No. 34: additional employee cost under section 146
Form No. 34 has two Parts.
| Part | Rows | What it asks |
|---|---|---|
| A: Basic Information | 1 and 2 | Name, address, Permanent Account Number and nature of business of the assessee; the tax year |
| B: Deduction Details, new business | 3 | Emoluments paid or payable during the tax year; 30% of them as the deduction under section 146 |
| B: Deduction Details, existing business | 4 | Employees on the last day of the preceding tax year and employed during the tax year; additional employees employed in the tax year and in the preceding tax year; total emoluments paid or payable to them; the deduction for the tax year (30% of the total), for the preceding year and for the year before that; the total deduction |
An assessee with a new business fills row 3. An assessee with an existing business fills row 4, which asks for the number of employees at both dates, then the number of additional employees split between those employed in the tax year and those employed in the immediately preceding tax year, and the emoluments of each group. Row 4(v) applies 30% to the tax year amount and carries the deduction eligible for the preceding year and the year prior to it, and row 4(vi) adds the three.
The verification reads: the accountant, giving name and Permanent Account Number, has examined the accounts and records of the assessee for the tax year and certifies that the eligible deduction under section 146 as worked out above is as per row 3(ii) or 4(vi). The accountant signs with designation, membership number, UDIN details if any, name of the proprietorship or firm and firm registration number.
Notes: names in full without abbreviations; the address must carry the eight listed elements; Note 3 refers to sections 146(5)(a), (b) and (c) for the three definitions; amounts in rupees unless otherwise provided.
Form No. 35: OBU and IFSC unit under section 147(4)(a)
Form No. 35 also has two Parts.
| Part | Rows | What it asks |
|---|---|---|
| A: Basic Information | 1 and 2 | Name, address and Permanent Account Number of the assessee; the tax year |
| B: the Unit | 3 | Nature of unit (an Offshore Banking Unit in any Special Economic Zone, or a unit of an International Financial Services Centre owned by the assessee); name and address; upload of the permission under the Banking Regulation Act, 1949 or the International Financial Services Centres Authority Act, 2019; date of commencement; if commencement is after 1 April 2026, whether the unit is formed by splitting up, reconstruction, reorganisation or transfer of a business already in existence in India |
| B | 4 | First tax year of claim of deduction under section 147(1) or (2) |
| B | 5 to 9 | Gross income of the unit referred to in section 147(3); the part not received in convertible foreign exchange; gross eligible income (row 5 less row 6); expenses attributable to row 7; income eligible for deduction (row 7 less row 8) |
For an IFSC Insurance Office undertaking insurance business, the form says "gross income" means the profit and gains calculated under section 55 and Schedule XIV of the Act, and row 8 may then be submitted as Nil.
The verification: the accountant has examined the account and records of the units mentioned in row 3 for the tax year and certifies that the eligible deduction is as per row 9. Notes cover names, address elements and the rupee unit.
An example
Kaveri Bank Limited, a scheduled bank, has an Offshore Banking Unit in a Special Economic Zone. For the tax year, the accountant fills Part A, then in Form No. 35 notes the nature of the unit, uploads the permission under the Banking Regulation Act, and enters the gross income of the unit in row 5. The part not received in convertible foreign exchange goes to row 6, expenses attributable to the remainder go to row 8, and row 9 gives the income eligible for the deduction. Separately, Sundar Components Private Limited, a manufacturer, added staff in the tax year after starting a new line within an existing business. Its accountant fills row 4 of Form No. 34 with the counts and emoluments, and the 30% deduction flows through row 4(v) and (vi). Both reports go with the return.
Need help with these accountant reports?
Both deductions depend on getting the definitions, the dates and the supporting permissions right before the return goes in. Our tax planning advisory team can help you test eligibility and prepare the working for the accountant.
Key takeaways
- Form No. 34 supports the deduction for additional employee cost under section 146; rule 68 ties it to the return of income.
- Form No. 35 supports the deduction for an Offshore Banking Unit or IFSC unit under section 147(4)(a); rule 69 prints no time limit.
- Form No. 34 row 3 is for a new business, row 4 for an existing business, and the 30% is applied by the form.
- Form No. 35 asks for the permission under the Banking Regulation Act, 1949 or the IFSCA Act, 2019.
- The accountant is one defined in section 515(3)(b) and signs a verification in each form.
Read next
- Rules 68 to 72 on accountant reports and certificates
- Section 146: deduction for additional employee cost
- Form No. 32: audit report for deductions under sections 46 and 138 to 144
- Form No. 40: option for relief on a retirement benefit account in a notified country
Disclaimer: Based on the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026, as consulted on 4 October 2026. It explains the words of the forms and rules only; later notifications, the forms and utilities on the e-filing portal, circulars and the way the tax authorities apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.