Expert opinion · Cross-border tax

Form 145 Part C or Part D? Worked examples by purpose code

Short answer. Part C is for a payment chargeable to tax in India that takes the year's total to the payee above ₹5 lakh: a chartered accountant's Form 146 is filed first. Part D is for a payment not chargeable to tax in India, such as business income of a payee with no permanent establishment here, or fees a tax treaty protects. Payments on the specified list, such as imports of goods, need neither.

The rules for choosing a part of Form 145 fit in four lines. Applying them to a real invoice is harder, because the answer turns on what the payment is for and who receives it. These examples work through the purpose codes that come up most.

CA Prachi GoelChartered Accountant · FEMA, RBI reporting and cross-border tax 8 min read Updated
Is the payment chargeable to tax in India, and how much goes to the payee this year?
  1. No formS0101, S0102Imports of goods are on the specified list
  2. Part ATaxable, within ₹5 lakhThe year's total to the payee stays within the limit
  3. Part CS1006, S1004, S0902Taxable, above ₹5 lakh: Form 146 first
  4. Part DS1007, S0203, S1099Not chargeable: no permanent establishment
  5. D or CS0802, S0807Software: Part D with treaty papers, else Part C
Form 145 parts for common purpose codes

Key points

  • Three questions decide the part: is the purpose on the specified list, is the payment chargeable to tax in India, and what is the year's total to the payee.
  • Part C needs a chartered accountant's Form 146, filed before Form 145; Part D does not.
  • Consultancy and royalty are usually taxable: Part A within ₹5 lakh, Part C above it, unless a treaty protects the fee.
  • Advertising, freight and other business income of a payee with no permanent establishment in India are usually Part D.
  • For software and SaaS, the treaty papers decide: Part D with them, Part C without them.

Three questions decide the part

  1. Is the purpose on the specified list in Rule 220(3) of the Income-tax Rules, 2026? Then neither Form 145 nor Form 146 is needed. Imports of goods (S0101 to S0104) are the common case.
  2. Is the payment chargeable to tax in India? Under the Income-tax Act, 2025, read with the tax treaty with the payee's country. If not, it is Part D.
  3. If it is chargeable, how much goes to this payee in the financial year? Within ₹5 lakh in total, Part A. Above it, Part C with a chartered accountant's Form 146, or Part B if you hold the tax officer's certificate for nil or lower deduction.

Where tax is withheld, the Act rate on fees for technical services and royalty is 20% plus surcharge and 4% cess (20.8% when there is no surcharge), or the treaty rate when the payee gives its tax residency certificate (TRC) and Form 41 (formerly Form 10F). The examples below use illustrative amounts.

Consultancy: S1006

₹3 lakh to a German firm for a market study, the first payment to it this year. Consultancy fees are fees for technical services under the Act, and the India–Germany treaty taxes such fees without asking whether know-how passes to you. The payment is chargeable, and with the year's total within ₹5 lakh it is Part A, without Form 146.

The same study from a US firm, for ₹18 lakh. The India–US treaty taxes such fees only when the service makes technical knowledge or skill available to you. A market study that hands over no know-how is the firm's business profits, taxable in India only through a permanent establishment. With its TRC, Form 41 and a no-permanent-establishment declaration, it is Part D.

₹18 lakh to a UK firm that trains your team and hands over its method. The India–UK treaty taxes such fees when the service makes technical knowledge or skill available to you, which training and a handed-over method do. The payment is chargeable and above ₹5 lakh: Part C, with Form 146 certifying the rate, at the treaty rate if the payee gives its TRC and Form 41.

₹18 lakh to a consultancy in the United Arab Emirates with no office or staff in India. The India–UAE treaty has no article on technical fees, so the fee is business profits, taxable in India only through a permanent establishment. With the payee's TRC, Form 41 and a no-permanent-establishment declaration, it is Part D.

Software and SaaS: S0802 and S0807

₹9 lakh a year for a SaaS subscription from a US provider. The Act treats a licence to use software as royalty, but under a tax treaty it is not, following the Supreme Court in Engineering Analysis Centre of Excellence v CIT (2021), because no copyright passes to you. With the provider's TRC, Form 41 and a no-permanent-establishment declaration, nothing is withheld and the filing is Part D. Without those papers the Act applies, the payment is royalty and above ₹5 lakh, so it is Part C.

Advertising, freight and other services: S1007, S0203, S1099

₹40 lakh of online advertising bought from a platform's overseas entity (S1007). It is the platform's business income, taxable in India only through a permanent establishment, and the equalisation levy on online advertising ended on 1 April 2025. Without a permanent establishment it is Part D, usually with the payee's TRC, Form 41 and no-permanent-establishment declaration on file.

Freight to a foreign shipping line on an import (S0203). Freight paid to a foreign shipping company is outside the withholding section (CBDT Circular 723 of 1995, and the shipping article of the treaty): Part D. Check that the payee is the carrier or its agent; a freight forwarder's own charges are a different question.

A service with no code of its own (S1099), where the payee has no permanent establishment in India and the service is not technical: business income, Part D. If the service is in substance technical or consultancy, treat it as in the S1006 examples.

Royalty: S0902

₹25 lakh to a foreign company for the use of its trademark. Royalty paid by a resident is taxable in India wherever the right is used. The payment is chargeable and above ₹5 lakh: Part C with Form 146, at the lower treaty rate if the payee gives its TRC and Form 41, or Part B if the tax officer has issued a certificate for a lower rate.

Mistakes that change the part

  • Splitting a payment to stay within ₹5 lakh: the limit is the year's total to the payee, not each payment.
  • Filing Part D without the papers: a treaty position needs the TRC, Form 41 and, for business income, the no-permanent-establishment declaration, in hand before you file.
  • Taking the purpose code as the answer: the code points to the usual position, but the contract decides. Training that transfers know-how changes a business-income payment into a technical fee.
  • Filing Form 145 before Form 146 for Part C: the CA's acknowledgement is quoted in Form 145.

FxLayer works out the part from the purpose code, the payee's country and papers and the year's payments to the payee, shows where a chartered accountant has to decide, and holds the payment request until the Form 145 and Form 146 acknowledgements are attached. Every purpose code's page in the directory shows its usual position.

Questions

No. Form 146 is required for Part C. For a large Part D payment some banks still ask for a chartered accountant's view in writing, so ask your bank before the payment date.
No. It is the total paid to that payee in the financial year. Once the year's payments to the payee cross ₹5 lakh, a chargeable payment moves from Part A to Part C.
Part B is for a chargeable payment above ₹5 lakh where the tax officer has issued an order or certificate for nil or lower deduction. The certificate's details are entered in the form.
The remitter does, with its chartered accountant, who certifies the position in Form 146 for Part C. The purpose code is a starting point; the contract and the treaty decide.

Sources

This article is general information on Indian foreign exchange and tax rules as they stood on the date shown. It is not legal or tax advice. Rules and limits change; confirm the current position with your AD bank, the relevant RBI Master Direction or your adviser before acting.

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