Payments and Remittances to Non-Residents in India: Regulatory Framework and Compliance

Regulatory Framework and Recent RBI Amendments

Payments and remittances to non-residents in India operate under the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines. The framework aims to ensure tax compliance, prevent evasion, and facilitate efficient cross-border capital flows. In February 2025, FEMA 14(R)(1)/2025-RB introduced updates to streamline settlement with member nations of the Asian Clearing Union (ACU), allowing transactions in INR or foreign currency through authorized dealers (reflecting recent market volatility).

The RBI’s Fifth Amendment Regulations, 2025, grant Indian exporters the ability to open and maintain foreign currency accounts abroad. These accounts can receive up to 100% of export proceeds and are permissible for import payments, provided remaining balances are repatriated within the stipulated timeline. This adjustment to capital structure enhances working-capital flexibility for exporters.

Promoting the Indian Rupee in Global Trade

The central bank has intensified efforts to internationalize the Indian Rupee (INR). Foreign branches of Indian banks may now offer Special Non-Resident Rupee (SNRR) and Special Rupee Vostro Accounts (SRVA) to non-resident clients. These instruments support foreign direct investment in non-debt instruments and enable settlement of trade invoices in INR. Adoption of INR billing (for instance, 30% of bilateral trade targets under the new policy) reduces currency-conversion risk and strengthens India’s position in global valuation multiples.

Enhanced Transparency: Reporting and Data Verification

To bolster transparency, all cross-border remitters must complete digital reporting of transaction particulars before remittance. Authorized dealers and banks will verify the remitter’s tax compliance and ensure that every payment is duly recorded. This process aligns with the Income Tax Department’s goal of curbing illicit fund flows (notably after a 15% surge in suspicious transactions last fiscal).

– Banks must confirm that the underlying transaction is chargeable to tax in India. – Any non-compliant or unauthorized remittance is subject to rejection.

TDS under Section 195 and Application of DTAAs

Section 195 of the Income Tax Act, 1961, requires deduction of tax at source (TDS) on payments to non-residents. Applicable payments include interest, royalties, technical-service fees, dividends, and capital gains. There is no de minimis threshold; TDS applies if the payment is taxable in India.

Entities responsible for TDS deduction:

• Individuals and Hindu Undivided Families (HUFs)
• Partnership firms and companies
• Foreign companies and trusts

When a Double Taxation Avoidance Agreement (DTAA) exists, the beneficial treaty rate may apply upon submission of a valid Tax Residency Certificate (TRC). For example, dividends paid to a non-resident in Oman attract 12.5% TDS under the India-Oman DTAA, versus 20% under domestic law.

Documentation: Forms 15CA and 15CB

The remittance process mandates two primary filings:

Form 15CA (Remitter’s Declaration) This online declaration must be filed prior to payment. It comprises:

• Part A: Non-taxable payments (e.g., gifts)
• Part B: Taxable payments with TDS
• Part C: Income-related payments (royalties, fees)
• Part D: DTAA-covered payments

Form 15CB (CA’s Certificate) Applicable when aggregate payments exceed ₹5 lakh per financial year. A Chartered Accountant certifies the payment’s nature, confirms the TDS rate, and verifies DTAA applicability. The certificate is e-verified and uploaded before submitting Form 15CA (Part C).

Forms are accessible via the Income Tax e-filing portal. Upon submission, the system issues an acknowledgment number for bank verification.

Practical Illustration: Technical-Services Remittance

An Indian IT firm engages a Singapore-based consultant for software development, invoicing ₹10 lakh. The compliance workflow is as follows:

1. Confirm taxability under Section 195.
2. Deduct TDS at 10% (unless a DTAA rate applies).
3. Obtain a Tax Deduction and Collection Account Number (TAN) and deposit TDS.
4. File Form 27Q and issue Form 16A to the consultant.
5. Secure Form 15CB from a CA and file Form 15CA (Part C).
6. Present both forms to the bank for remittance processing.

This sequence ensures adherence to India’s capital-account regulations and prevents double taxation.

Best Practices for Compliance

Maintaining robust internal controls is essential. Organizations should:

• Implement standard operating procedures (SOPs) for cross-border payments.
• Periodically audit FEMA and tax-reporting processes (ideally quarterly).
• Train staff on updates to RBI and Income Tax regulations (last amended February 2025).

Adherence to these guidelines will minimize regulatory risk and enhance operational efficiency in managing payments to non-residents.