Non-Resident Payments 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.
For non-resident payments, section 40(a)(i) disallows the whole sum where tax deductible under Chapter XVII-B was not deducted, or was deducted and not paid in time — and clause 21(b)(i) requires payee-wise detail in two separate tables.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026; note also that the foreign remittance forms 15CA/15CB/15CC are renumbered as Forms 145, 146 and 147 under rule 220 of the 2026 Rules.
Which non-resident payments are caught
Paragraph 34.1(i): the sums are interest, royalty, fees for technical services or other sum chargeable under the Income-tax Act which is:
- payable outside India; or
- payable in India to a non-resident or a foreign company,
on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted, or after deduction has not been paid during the previous year on or before the expiry of the time prescribed under section 139(1).
This is the structural difference between the two TDS limbs. On non-resident payments the entire amount is inadmissible; for resident payments under section 40(a)(ia) only 30% is. That is why the TAQRB finding on "incorrect classification of resident and non-resident" matters so much — a misclassification changes the disallowance by a factor of more than three, in either direction.
The two relief routes
| Route | Effect |
|---|---|
| Proviso to section 40(a)(i) — tax deducted in a subsequent year, or deducted in the previous year but paid in a subsequent year after the section 139(1) time | The sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid |
| Second proviso read with section 201 — the assessee failed to deduct but is not deemed to be an assessee in default under the first proviso to section 201(1) | It shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee |
Paragraph 34.8 requires the auditor to verify compliance with the requirements of section 201 where the second proviso is relied on, and to obtain and keep on record a copy of the certificate in Form 26A. Paragraph 34.2 adds: check how the Form 26A has been reflected in the TDS statement filed in Form 24Q, 26Q or 27Q.
The two tables clause 21(b)(i) requires
Paragraph 34.4: under clause 21(b)(i)(A), non-resident payments on which tax was required to be deducted but not deducted are reported — the details for each individual payee. Paragraph 34.5: under clause 21(b)(i)(B), payments on which tax is deducted but not deposited within the prescribed time during the previous year or in a subsequent year are reported, again for each individual payee.
Paragraph 34.6 gives the two working paper formats matching the e-filing utility:
| Table | Columns |
|---|---|
| (a) Tax not deducted | Sr. No. · Date of payment · Amount of payment · Nature of payment · Name and address of the payee · PAN of the payee, if available |
| (b) Tax deducted but not paid during the previous year or in the subsequent year before the section 139(1) time expires | The same six fields plus the amount of tax deducted |
How the auditor tests the chargeability question
Paragraph 34.3 distinguishes two situations, and the evidence differs in each.
Where a remittance was actually made
The tax auditor should obtain in writing from the assessee the details of all payments debited to the profit and loss account. Where an actual remittance overseas has been made during the year without deducting tax, the tax auditor may rely upon the legal opinion and/or certificates from chartered accountants on the basis of which the remittance was made without deduction — applying SA 620, Using the Work of an Auditor's Expert. He is advised to refer to the applicable Double Taxation Avoidance Agreement.
Where no remittance was made
Where no remittances have been made during the year, the auditor may examine the relevant provisions against the agreement or correspondence under which the liability is provided in the books, in order to determine whether any amount so provided is at all chargeable to tax under the Act. He may use professional judgement based on decided cases and may rely on a legal opinion obtained by the assessee that no tax is required to be deducted.
And the reporting instruction when they disagree: "In case he disagrees with the stand taken by the assessee, he should give both the views in his report."
Section 40(a)(i) operates on a sum that is payable, not only on one that has been paid. A year-end provision for foreign technical fees, with no remittance and no Form 15CA, is squarely within the auditor's enquiry — which is why paragraph 34.3 tells him to read the agreement or correspondence and decide chargeability rather than treating the absence of a remittance as the end of the matter. Non-resident payments credited but unpaid at the year end are squarely inside the clause.
Worked example
| Transaction | Position | Reporting |
|---|---|---|
| Rs 62,00,000 fees for technical services remitted to a US company; no TDS, on a CA certificate applying the DTAA | Auditor applies SA 620, reads the certificate and the DTAA article | If satisfied, no disallowance; if not, report in table (A) and give both views |
| Rs 15,00,000 royalty credited to a foreign vendor at the year end; no remittance, no TDS | Examine the agreement for chargeability | Report in table (A) if chargeable |
| Rs 9,00,000 interest to a non-resident; TDS of Rs 1,80,000 deducted in March, paid in December of the following year | Paid after the section 139(1) time | Report in table (B) with the tax deducted; deduction is allowed in the year of payment |
| A payment on which the non-resident payee filed a return and Form 26A was obtained | Second proviso with section 201 | Deemed deducted and paid on the payee's return date; retain Form 26A |
Audit checklist
- Obtain in writing the full list of payments debited, and isolate the non-resident payments that could be chargeable sums.
- Test chargeability against the agreement, the correspondence and the applicable DTAA.
- Where a certificate or legal opinion supports non-deduction, apply SA 620 and document the reliance.
- Cover provisions and credits, not just remittances.
- Complete both tables, payee-wise, with date, amount, nature, name, address and PAN, and tax deducted in table (B).
- Where relief under the second proviso is claimed, hold Form 26A and reconcile it to the TDS statement.
- Disallow the whole sum — the 30% restriction does not apply here.
- Where you disagree with the assessee, give both views in the report.
Common mistakes
- Applying the 30% restriction to non-resident payments, where the whole sum is disallowed.
- Ignoring year-end provisions because nothing was remitted.
- Accepting a CA certificate without applying SA 620 or reading the DTAA article.
- Merging the two tables, so the tax deducted column is lost.
- Suppressing a disagreement instead of reporting both views.