The new Clause 43 introduced in Tax Audit Form No. 26, applicable from Tax Year 2026-27, significantly increases scrutiny over foreign remittances reported in Part-D of Form 145. Under Rule 220(2) of the Income Tax Rules 2026, taxpayers making payments to non-residents that are claimed as non-taxable must disclose such transactions in Part-D of Form 145. Clause 43 now requires tax auditors to report the nature of remittances, number of transactions, total remittance amount, amount chargeable to tax, and amount not chargeable to tax. The amendment aims to curb the practice of declaring controversial foreign remittances as non-taxable merely to avoid obtaining a professional certificate in Form 146 or deducting tax at source. The article cautions businesses and professionals against casually reporting transactions in Part-D, as such disclosures may trigger departmental scrutiny and litigation. It recommends using Part-C with Form 146 certification for doubtful or complex remittances.
Clause 43 — Remittances Reported in Part-D of Form 145 During the Tax Year:
A single incorrect entry in Part-D of Form 145 could trigger a tax department inquiry. Here’s what businesses and professionals need to know about the new Clause 43.
In the Tax Audit Form No.26 which is applicable from the Tax Year 2026-27, a new clause 43 has been inserted which requires the Tax Auditor to provide details of transaction reported in Part-D of Form 145 during the year.
As per Rule 220(2) of the Income Tax Rules 2026, the person paying any sum to a non-resident which is not chargeable under the provisions of the Act shall furnish the information in Part D of Form 145.
The information is to be provided as per the Format given in the following Table.
It basically consists of:
1. Nature of Remittance
2. Total No. of Transaction for such Remittances
3. Total Amount of Remittances
4. Amount not chargeable to Tax
5. Amount chargeable to Tax
Now by virtue of Clause 43 of the New Tax Audit Report, the Tax Auditor is supposed to express his opinion as to the total remittances during the year reported in Part-D of Form 145, how much amount is chargeable to tax and how much is not chargeable to tax.
Often it has been observed that Foreign Vendors object to withholding and insist on gross amount of remittance as per their Invoice. In order to overcome requirement of obtaining Certificate from a professional in Form 146, people simply report the transaction in Part-D of Form 145 as not chargeable to tax. Such positions and practices are extremely risky and prone to litigation.
Businesses now need to be extremely cautious before reporting anything in Part-D of Form 145, as the same will be subject to review by the Tax Auditor and subsequently by the Department after the Tax Audit Report is furnished.
Professionals should also refrain from advising clients to report controversial remittances in Part-D of Form 145. The better course of action is to furnish information in Part-C of Form 145, after obtaining a certificate in Form 146 from a qualified professional who will analyse the transaction and provide reasons for non-deduction of tax at source, citing relevant clauses of the Income Tax Act and the applicable Double Tax Avoidance Agreement.
Author Bio
