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  • FATCA CRS Foreign Assets Disclosure: 7 Critical Things Every Doctor Must Know

    FATCA CRS Foreign Assets Disclosure: 7 Critical Things Every Doctor Must Know

    FATCA CRS Foreign Assets Disclosure
    FATCA CRS Foreign Assets Disclosure

    A Doctor. A Foreign Account. A Notice That Changed Everything.

    A Doctor. A Foreign Account. A Notice That Changed Everything.

    A doctor maintained a foreign savings account for years. It was opened during his fellowship abroad, kept active for convenience — occasional deposits, minor interest income, nothing extravagant. He never declared it in his Income Tax Return because, frankly, he did not think it mattered.

    Then a notice arrived from the Income Tax Department.

    The department already knew about the account. The balance. The interest earned. The transactions. All of it.

    How? Through the silent, relentless data-sharing machinery of FATCA CRS foreign assets disclosure frameworks that have fundamentally changed how foreign asset reporting works across 120+ countries.

    This is not a hypothetical story. Dr. Haresh Adwani, Partner of Adwani and Company, has personally guided numerous doctors and professionals through exactly this situation. And the pattern is almost always the same: a well-meaning professional, an undisclosed foreign account, and a notice that triggers panic.

    As Dr. Haresh Adwani puts it: “I personally know doctors who had no idea their foreign savings accounts were visible to the Indian tax department. They maintained them for years without declaration. And then the notices came.”

    This blog is your comprehensive guide to understanding FATCA CRS foreign assets disclosure, why it matters especially for doctors, and how to ensure you are fully compliant before the department comes knocking.

    What Is FATCA CRS Foreign Assets Disclosure?

    FATCA CRS Foreign Assets Disclosure: The FATCA Framework Explained

    FATCA was originally enacted by the United States in 2010 to combat tax evasion by US persons holding accounts abroad. However, its impact has been global. Under FATCA, foreign financial institutions (FFIs) worldwide are required to report information about accounts held by tax residents of partner countries including India.

    India signed an Inter-Governmental Agreement (IGA) with the US on 9 July 2015, with the implementing Rules (114F to 114H) notified on 7 August 2015 and the agreement coming into force on 31 August 2015, making Indian financial institutions subject to FATCA reporting requirements from that date. But more importantly for Indian taxpayers, this agreement also works in reverse — foreign financial institutions report Indian residents’ account information to the Indian tax authorities.

    CRS: The Common Reporting Standard

    While FATCA is US-centric, the Common Reporting Standard (CRS) is a global framework developed by the Organisation for Economic Co-operation and Development (OECD). Under CRS:

    • Over 120 jurisdictions have committed to automatically exchanging financial account information
    • Financial institutions identify accounts held by foreign tax residents
    • Account information is reported to the local tax authority, which then shares it with the account holder’s home country

    India adopted CRS in 2017 under Rule 114F to 114H of the Income Tax Rules.

    What Information Gets Exchanged Under FATCA CRS Foreign Assets Disclosure?

    The scope of information sharing is comprehensive:

    • Account holder identity: Name, address, tax identification number (PAN)
    • Account balance: Year-end balance or value
    • Interest income: Gross interest credited during the year
    • Dividend income: Dividends received during the year
    • Sales proceeds: Gross proceeds from sale of financial assets
    • Other income: Any other income credited to the account

    This means the Income Tax Department potentially has access to your foreign account details before you even file your return. This is the reality of modern FATCA CRS foreign assets disclosure — and ignoring it is no longer an option.

    Also Read:

    https://www.adwaniandco.com/blog/role-of-hr-in-a-ca-firm

    Why Doctors Are Particularly Vulnerable to FATCA CRS Foreign Assets Disclosure Issues

    The Medical Professional’s Global Footprint

    Doctors, more than almost any other professional group, have legitimate reasons for maintaining foreign financial connections:

    • Medical fellowships abroad: Many Indian doctors spend 2–5 years training in the US, UK, Australia, or other countries, opening bank accounts during their stay. These accounts often remain open long after they return to India.
    • Conference travel and honorariums: International medical conferences sometimes pay honorariums or reimbursements into foreign accounts.
    • Investments made during overseas training: Some doctors invest in mutual funds, retirement accounts (like 401(k) in the US or pension funds in the UK), or even property during their time abroad.
    • NRI to Resident status transition: Doctors who return to India after extended overseas practice often retain NRE/NRO accounts or foreign accounts that need different tax treatment once residential status changes.
    • Collaborative research funding: International research grants may be channeled through foreign institutional accounts where the doctor has beneficial ownership.
    • Inheritance: Some doctors inherit foreign assets from family members settled abroad.

    The problem is not having these accounts or assets. The problem is not disclosing them in the Indian ITR which triggers FATCA CRS foreign assets disclosure compliance failures.

    The Common Misconception About FATCA CRS Foreign Assets Disclosure

    Most doctors Dr. Haresh Adwani encounters share a common misconception: “The account is dormant / the balance is small / I do not use it anymore so it does not need to be declared.”

    This is incorrect.

    Under Indian tax law, every foreign asset must be disclosed in Schedule FA of your ITR, regardless of:

    • Whether the account is active or dormant
    • The balance amount (even zero-balance accounts with potential opening during the year)
    • Whether any income was earned
    • Whether the income was received in India or abroad

    Schedule FA: The Mandatory Foreign Assets Declaration

    What Is Schedule FA?

    Schedule FA (Foreign Assets and Foreign Income) is a section in the Indian Income Tax Return where taxpayers must declare all foreign assets and income. It applies to individuals who are Resident and Ordinarily Resident (ROR) in India.

    What Must Be Disclosed in Schedule FA?

    The disclosure requirements are extensive:

    • Foreign bank accounts: Every account, including dormant ones, with details of the bank name, country, account number, peak balance during the year, and closing balance
    • Foreign financial accounts: Investment accounts, custodial accounts, insurance products with cash value
    • Foreign immovable property: Property owned abroad, with purchase details, country, total investment, and income derived
    • Foreign equity or debt interest: Shares, debentures, or any other interest in a foreign entity, with name of entity, country, nature of interest, and total investment
    • Foreign trusts: Beneficial interest as trustee, beneficiary, or settler in any foreign trust
    • Any other foreign asset: Any other capital asset held outside India
    • Foreign income: All sources including salary, interest, dividends, rental income, and capital gains

    5 Key Points Most Doctors Miss About FATCA CRS Foreign Assets Disclosure

    1. Dormant accounts count. Even if you have not used the account in years, if it exists and has a balance (even $100), it must be declared.
    2. Retirement accounts abroad count. Your US 401(k) or UK pension fund needs to be disclosed in Schedule FA.
    3. Income received in India from foreign sources counts. If a foreign entity pays you a consulting fee and deposits it in your Indian bank account, it is still foreign income that needs proper classification.
    4. Jointly held accounts count. If you are a joint holder on a family member’s foreign account, your interest may need to be disclosed.
    5. Signing authority matters. Even if you do not own the account but have signing authority on it, disclosure obligations may apply.

    The Black Money Act: Severe Consequences for Non-Compliance

    What Is the Black Money Act?

    The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 commonly called the Black Money Act was specifically enacted to deal with undisclosed foreign assets and income. It is one of the most stringent tax laws in India.

    Penalties Under the Black Money Act

    • Undisclosed foreign income: Tax at 30% flat rate (no slab benefit) + penalty of 90% of the tax amount (effective rate: approximately 120% of the undisclosed income)
    • Failure to disclose foreign assets in Schedule FA: Penalty of ₹10 lakh per assessment year of non-disclosure
    • Willful attempt to evade tax on foreign income: Rigorous imprisonment of 3–10 years + fine

    These penalties are in addition to regular income tax liability. And unlike regular tax proceedings, the Black Money Act penalties are not easily negotiable or reducible.

    A Real-World Example of FATCA CRS Foreign Assets Disclosure Penalties

    Dr. Priya Sharma (name changed for privacy) maintained a bank account in the United States with an average balance of $40,000 (approximately ₹33 lakh). The account earned interest of $800 per year. She never disclosed the account or the interest income in her ITR for 5 years.g FATCA CRS foreign assets disclosure is not just important it is financially critical.

    When the information reached the Indian tax department through FATCA:

    Liability HeadAmount
    Penalty for non-disclosure of foreign asset₹10 lakh × 5 years = ₹50 lakh
    Tax on undisclosed interest income30% of total interest over 5 years
    Additional penaltyUp to 90% of the tax amount
    Total potential liability₹55 lakh+

    This is precisely why understanding FATCA CRS foreign assets disclosure is not just important it is financially critical.

    How the Income Tax Department Uses FATCA CRS Data

    The FATCA CRS Foreign Assets Disclosure Data Pipeline

    Here is how the information flows:

    1. Foreign financial institution identifies an account held by an Indian tax resident
    2. Foreign tax authority collects this data from institutions in its jurisdiction
    3. Data is transmitted to the Indian Income Tax Department through automatic exchange
    4. The department matches this data against the taxpayer’s filed ITR
    5. If there is a mismatch an asset not declared, income not reported a notice is generated

    According to the Income Tax Department, India has been actively receiving and processing FATCA/CRS data since 2017, and the matching algorithms have become increasingly sophisticated.

    The AIS Connection

    Your Annual Information Statement (AIS) now includes foreign asset and income information received through FATCA/CRS. Before filing your ITR, you can check your AIS to see what the department already knows about your foreign financial life.

    Dr. Haresh Adwani strongly recommends this as a first step for all clients with any foreign connections: “Check your AIS before you file. If the department already has the information, there is no point in not disclosing it. Voluntary compliance is always the less painful path.

    The FEMA Angle: Double Jeopardy for Non-Compliance

    It is important to note that FATCA CRS foreign assets disclosure failures do not just create income tax problems. They can also trigger issues under the Foreign Exchange Management Act (FEMA), administered by the Reserve Bank of India.

    If you are a resident Indian holding foreign assets without proper RBI authorization, you may face:

    • Penalties under FEMA for unauthorized holding of foreign assets
    • Compounding proceedings before the RBI
    • Scrutiny of the original source of funds used to acquire the foreign asset

    The Income Tax Department and RBI have information-sharing mechanisms, which means a tax notice can snowball into a FEMA investigation and vice versa.

    This dual regulatory framework makes it even more critical for doctors to ensure full FATCA CRS foreign assets disclosure compliance across both regimes.n assets disclosure compliance across both regimes.

    What Should You Do Right Now?

    Step 1: Audit Your Foreign Financial Footprint

    Make a comprehensive list of every foreign financial relationship you have or have ever had:

    • Bank accounts (active and dormant)
    • Investment accounts
    • Retirement/pension accounts
    • Property ownership
    • Signing authority on any account
    • Beneficial interest in foreign entities

    Step 2: Check Your Past ITRs

    Review your filed returns for the last 5–6 years. Did you fill out Schedule FA? Were all foreign assets disclosed? Was foreign income properly reported?

    If you filed through a CA or tax preparer, ask them specifically whether Schedule FA was completed.

    Step 3: Download Your AIS and TIS

    Your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) on the Income Tax e-filing portal may already contain information received through FATCA/CRS. Check whether foreign account data appears there.

    Step 4: Consider Voluntary FATCA CRS Foreign Assets Disclosure

    If you discover that your foreign assets were not disclosed in past returns, the voluntary disclosure route is always the less painful path. While penalties may still apply, proactive disclosure demonstrates good faith and can significantly reduce the severity of consequences.

    Dr. Haresh Adwani advises: “Voluntary disclosure, done correctly and timely, is always better than waiting for a notice. The department is far more lenient with taxpayers who come forward than with those who are caught.”

    Step 5: Engage a Specialist

    Foreign asset taxation sits at the intersection of Indian tax law, international treaties, FEMA regulations, and country-specific tax rules. This is not a DIY exercise. Engage a Chartered Accountant with specific experience in international taxation and FATCA/CRS compliance.

    At Adwani and Company, we have a dedicated practice for NRI taxation and foreign asset compliance.

    Key DTAA Benefits You Might Be Missing {#dtaa}

    What Is DTAA?

    India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries. These agreements ensure that the same income is not taxed twice — once in the country where it is earned, and again in India.

    How DTAA Applies to FATCA CRS Foreign Assets Disclosure

    If you earn interest on a US bank account, for example:

    • The US may withhold tax at 15% (under the India-US DTAA)
    • You must declare this income in your Indian ITR
    • You can claim tax credit for the US tax paid under Section 90/91
    • Your effective Indian tax on this income is reduced by the foreign tax credit

    Many taxpayers miss this benefit, ending up paying double tax — or worse, not declaring the income at all because they assume tax has already been paid abroad. Proper FATCA CRS foreign assets disclosure includes optimizing your DTAA benefits.

    Real-World Resolution: How Adwani and Company Helps

    The Situation: A surgeon who returned to India in 2018 after a 6-year practice in the UK. He retained a UK bank account with £25,000 and a small pension fund. He filed Indian ITRs since 2018 but never completed Schedule FA. In 2024, he received a notice from the Income Tax Department referencing CRS data.

    Our Approach:

    1. Comprehensive review of all foreign accounts and their history
    2. Reconciliation of foreign income with Indian tax filings for each year
    3. Preparation of revised returns with complete Schedule FA disclosure
    4. Drafting a detailed response to the income tax notice explaining the oversight and demonstrating good faith
    5. Liaison with the Assessing Officer to settle the matter at the assessment stage
    6. FEMA compliance review to ensure RBI requirements were also met

    The Outcome: The matter was resolved with minimal penalties. No prosecution. No extended investigation. The key factor? Proactive, professional, and transparent engagement with the department..

    Conclusion: FATCA CRS Foreign Assets Disclosure Is a Legal Necessity

    The world has changed. Financial borders have dissolved — not for money, but for information. With FATCA and CRS, your foreign accounts are no longer your private secret. They are data points in a global network that connects over 120 countries, and the Indian Income Tax Department is an active participant in this network.

    For doctors and professionals with foreign assets, the message is clear: FATCA CRS foreign assets disclosure is not optional, not a formality, and not something to be deferred. It is a legal obligation with severe consequences for non-compliance.

    But here is the silver lining voluntary compliance, done correctly, is the less painful path. It protects you from penalties, prosecution, and the stress of responding to a notice you were not prepared for.

    As Dr. Haresh Adwani consistently advises: “The department often knows before you file. The question is not whether to disclose it is whether you disclose on your terms or on theirs.”

    If you have foreign assets, accounts, or income that need to be properly disclosed, connect with Adwani and Company today. Our team has deep expertise in international tax compliance, FATCA/CRS reporting, and Black Money Act advisory. We will ensure your disclosures are accurate, complete, and strategically optimized.

    Your expertise saves lives. Let ours protect your financial well-being.

    Do not wait for the notice. Take control of your FATCA CRS foreign assets disclosure compliance today with Adwani and Company.

    “This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified professional for advice specific to your situation.”

    1. What is FATCA CRS foreign assets disclosure?

    refers to the mandatory reporting and declaration of foreign financial accounts and assets under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). Indian taxpayers must declare all foreign assets in Schedule FA of their ITR.

    2. Do I need to disclose a dormant foreign bank account in my ITR?

    tax law, every foreign bank account — whether active, dormant, or even zero-balance — must be disclosed in Schedule FA if you are a Resident and Ordinarily Resident (ROR) in India.

    3. What is the penalty for not disclosing foreign assets in India?

    Act, 2015, non-disclosure of foreign assets attracts a penalty of ₹10 lakh per assessment year. Additional penalties of up to 90% of the tax amount and imprisonment of 3–10 years may also apply.

    4. How does the Income Tax Department know about my foreign accounts?

    FATCA and CRS, over 120 countries automatically share financial account information with India. Your foreign bank reports your account details to its local tax authority, which then transmits it to the Indian Income Tax Department

    5. Can I file a revised return to disclose previously undisclosed foreign assets?

    can file a revised or updated return to correct past omissions within the prescribed time limits. Voluntary FATCA CRS foreign assets disclosure is always viewed more favorably than forced disclosure after a notice. Consult Adwani and Company for guidance.

    6. Are foreign retirement accounts like 401(k) reportable in India?

    Yes. Foreign retirement accounts, pension funds, and similar instruments are reportable under Schedule FA. The income treatment may vary based on the specific DTAA provisions between India and the relevant country.

    7. How can Dr. Haresh Adwani help with FATCA CRS foreign assets disclosure?

    Haresh Adwani and the team at Adwani and Company provide end-to-end support for FATCA CRS foreign assets disclosure — from asset mapping and AIS verification to Schedule FA preparation, DTAA benefit optimization, and notice response. Contact us today.

    Author

    Dr. Haresh Adwani PhD (Commerce)  •  Adwani & Company, Pune Dr. Haresh Adwani holds a PhD in Commerce and brings over 20 years of expertise in GST compliance, income tax advisory, FEMA, and corporate law. He is one of Pune’s most trusted Chartered Accountants for GST litigation, demand notice resolution, appeal management, and tax planning for businesses and individuals. Services include GST audit, ITR filing, GST appeal representation, notice response, NRI taxation, and FEMA compliance.
  • Role of HR in a CA Firm:7 Powerfull Reasons Why It Matters More Than You Think

    Role of HR in a CA Firm:7 Powerfull Reasons Why It Matters More Than You Think

    Role of HR in a CA Firm
    Role of HR in a CA Firm

    Role of HR in a CA Firm: The Invisible Force Behind Every Deadline Met and Every Client Served

    There is a beautiful analogy that Nidhi Adwani recently shared: “HR in a CA firm is like salt in every dish. Not always visible during client meetings or filings… But the moment it is missing, everything feels off.”

    Think about that for a moment.

    When a client’s tax return is filed on time, they thank the CA. When an audit report is delivered without errors, the partner gets the credit. When a GST return is submitted before the deadline, the team celebrates. But behind every one of those moments, there is an invisible force that made it possible Human Resources.

    The role of HR in a CA firm is perhaps the most underestimated function in the entire profession. In a world obsessed with numbers, compliance, and deadlines, it is easy to forget that behind every balance sheet is a human being someone who needs to be hired, trained, motivated, supported, and retained.

    At Adwani and Company (https://www.adwaniandco.com/), we have long recognized that our greatest asset is not our technical expertise alone it is our people. And the function responsible for nurturing those people is HR. In this blog, we explore why the role of HR in a CA firm is the backbone of every successful practice and how it quietly shapes culture, performance, and growth.

    Also read:

    https://www.adwaniandco.com/blog/credit-card-income-tax-notice

    Why Most CA Firms Underestimate the Role of HR

    The “Technical-First” Mindset

    Let us be honest. Most CA firms are built around technical excellence. The partners are Chartered Accountants. The managers are CAs. Even the article assistants are aspiring CAs. In such an environment, the natural tendency is to prioritize technical skills over people management.

    HR is often treated as an administrative function someone who handles attendance, processes salaries, and posts job openings. This narrow view fundamentally undermines the role of HR in a CA firm and leads to problems that compound over time:

    • High attrition, especially among article assistants and semi-qualified staff
    • Burnout during peak seasons with no structured support system
    • Inconsistent onboarding that leaves new hires confused and unproductive
    • Cultural issues that go unaddressed until they become toxic

    The firms that recognize HR as a strategic partner not just a support function are the ones that consistently outperform their peers.

    The Numbers Behind the Problem

    According to industry surveys, CA firms in India experience annual attrition rates of 25-40% among junior staff. The cost of replacing a trained team member factoring in recruitment, onboarding, training, and lost productivity can be 3 to 6 months of that person’s salary.

    Now multiply that across a firm with 30-50 employees, and you will realize that poor HR practices are not just a “soft” problem they are a direct hit to the firm’s profitability.

    The Core Functions of HR That Define the Role of HR in a CA Firm

    1. Recruitment and Talent Acquisition

    The role of HR in a CA firm begins with finding the right people. And in the accounting profession, “right” does not just mean technically qualified. It means finding individuals who can handle pressure, work collaboratively, communicate with clients, and grow within the firm’s culture.

    Effective HR departments in CA firms:

    • Build relationships with commerce colleges and CA coaching institutes for pipeline hiring
    • Create structured interview processes that assess both technical and soft skills
    • Develop employer branding that attracts top talent (yes, even CA firms need employer branding)
    • Manage articleship registrations and ICAI compliance for article assistants

    At Adwani and Company, our recruitment process is designed to identify not just skill but character. Dr. Haresh Adwani often says, “We can teach tax law. We cannot teach integrity and work ethic. HR helps us find people who already have both.”

    2. Onboarding and Training

    The first 30 days of a new hire’s experience determine whether they will stay for three years or leave in three months. HR ensures that new team members:

    • Understand the firm’s culture, values, and expectations from day one
    • Receive structured training on the firm’s software, processes, and client protocols
    • Are paired with mentors who guide them through the initial learning curve
    • Have clarity on their career path and growth opportunities within the firm

    For article assistants, this is particularly critical. These young professionals are often experiencing their first workplace, and the quality of their onboarding shapes their entire perception of the CA profession.

    3. Performance Management and Feedback

    In the absence of structured performance management, CA firms tend to operate on an informal system: if no one complains, you are doing fine. This approach is deeply flawed because it provides no mechanism for growth, recognition, or early course correction.

    A robust HR function implements:

    • Quarterly performance reviews tied to specific, measurable goals
    • 360-degree feedback that includes input from peers, seniors, and clients
    • Recognition programs that celebrate outstanding work (not just during annual events)
    • Performance improvement plans for team members who are struggling, before resorting to termination

    4. Workload Management During Peak Seasons

    This is where the role of HR in a CA firm becomes absolutely critical. Tax season particularly July through October and then again during January through March is brutal. 12-16 hour workdays, weekend work, constant client pressure, and zero room for error.

    Without HR intervention, peak season becomes a survival exercise rather than a managed process. Effective HR teams:

    • Forecast workload in advance and plan temporary staffing if needed
    • Implement shift rotations to prevent burnout
    • Monitor team well-being through regular check-ins
    • Organize stress-relief activities even something as simple as ordering dinner for the team during late nights
    • Ensure compensatory leave after peak season to allow recovery

    Nidhi Adwani captures this perfectly: “During peak tax season, when pressure is high and hours are long, HR becomes the anchor keeping teams motivated, aligned, and supported.”

    5. Employee Retention and Engagement

    Retention is the ultimate test of HR effectiveness. In the CA profession, where skilled professionals are in constant demand, keeping your best people is both the hardest and most important challenge.

    The strategies that work:

    • Competitive compensation benchmarked against industry standards (the Institute of Chartered Accountants of India (https://www.icai.org) periodically publishes stipend guidelines for article assistants)
    • Clear career progression – from article assistant to semi-qualified to qualified CA to manager to partner
    • Work-life balance initiatives -flexible timing during non-peak months, work-from-home options, wellness programs
    • Continuous learning opportunities – sponsoring CPE seminars, technical workshops, and soft skills training
    • Transparent communication – town halls, open-door policies, and genuine listening

    6. Compliance and Legal Requirements

    HR in a CA firm must also manage internal compliance – an ironic but essential responsibility for a profession built on compliance. This includes:

    • Employment contracts and appointment letters
    • Provident Fund (PF) and Employee State Insurance (ESI) compliance
    • Leave policies aligned with applicable labor laws
    • Prevention of Sexual Harassment (POSH) compliance, including constituting an Internal Complaints Committee
    • Articleship registration and documentation as per ICAI norms (https://www.icai.org)

    The Cultural Impact of Strong HR: Why the Role of HR in a CA Firm Extends Beyond Policies

    Building a Firm People Want to Stay At

    When people talk about the “culture” of a CA firm, they are really talking about the cumulative effect of hundreds of HR decisions how conflicts are resolved, how achievements are celebrated, how feedback is delivered, how mistakes are handled.

    The role of HR in a CA firm extends far beyond policies and processes. It shapes the experience of working there.

    Consider two scenarios:

    Firm A: No structured HR. New joiners figure things out on their own. Performance feedback is limited to annual appraisals (if at all). During tax season, the expectation is “just get it done.” People leave quietly, and no exit interview is conducted.

    Firm B: Dedicated HR function. New joiners go through a week-long onboarding program. Quarterly reviews with specific feedback. During tax season, the firm provides meals, arranges transportation for late nights, and ensures comp-offs afterward. Exit interviews are conducted, and feedback is acted upon.

    Which firm retains better talent? Which firm delivers better client service? Which firm grows faster?

    The answer is obvious. And the difference is HR.

    At Adwani and Company (https://www.adwaniandco.com/), we have invested in building a culture where professionals feel valued, supported, and empowered. This culture did not happen by accident it was deliberately built, one HR initiative at a time.

    The Cost of Ignoring the Role of HR in a CA Firm

    What happens when CA firms neglect HR? The consequences are predictable and painful:

    • No structured recruitment → Poor talent quality, frequent bad hires
    • No onboarding/training → High early-stage attrition, client errors
    • No performance management → Demotivated staff, unclear expectations
    • No workload management → Burnout, health issues, mass resignations
    • No retention strategy → Constant talent drain, increased costs
    • No culture building → Toxic work environment, low morale

    The financial cost is staggering. Replacing a trained professional costs 2-3 times their annual salary when you factor in recruitment, training, lost productivity, and client relationship disruption.

    A Practical Example: HR During Tax Season at Adwani and Company

    During the July-September income tax filing season, Adwani and Company implements a structured HR protocol:

    1. Pre-season planning (June): HR works with team leaders to forecast workload, identify resource gaps, and arrange temporary support if needed.
    2. Daily check-ins: Brief morning huddles to distribute tasks, address bottlenecks, and check on team well-being.
    3. Wellness initiatives: Weekly stress-relief activities from group lunches to short breaks and team bonding.
    4. Logistical support: Meals during late-night work sessions, transportation support for team members working past regular hours.
    5. Post-season recognition: After the deadline passes, HR organizes team celebrations and provides compensatory time off.

    This is not just good management. It is strategic HR that directly translates to better client service and higher employee retention. It exemplifies the true role of HR in a CA firm.

    How to Strengthen the Role of HR in Your CA Firm: A Practical Roadmap

    If you are a CA firm partner who recognizes the need for better HR practices, here is a practical roadmap:

    Step 1: Designate an HR Responsibility Owner Even if you cannot hire a full-time HR professional immediately, assign the responsibility to someone who has the interest and aptitude.

    Step 2: Document Your Core HR Processes Create written policies for recruitment, onboarding, leave management, performance reviews, and exit procedures. Documentation brings consistency.

    Step 3: Implement a Simple Performance Review System Start with bi-annual reviews. Use a simple format: What went well? What could improve? What are the goals for the next six months?

    Step 4: Invest in Team Well-Being During Peak Season Budget for meals during late-night work, transportation support, and compensatory time off.

    Step 5: Conduct Exit Interviews And Act on Them When someone leaves, understand why. If the same reasons keep appearing, you have a systemic problem.

    Step 6: Build Employer Branding Share your firm’s culture on social media, particularly LinkedIn. Highlight team achievements, learning opportunities, and work culture.

    The Future of HR in the Accounting Profession

    The CA profession is evolving rapidly. Automation, AI-driven compliance tools, and cloud-based accounting are transforming how work gets done. But one thing technology cannot replace is the human element.

    As routine tasks get automated, the value of skilled professionals those who can advise clients, interpret complex regulations, and build relationships increases. The role of HR in a CA firm will shift from managing headcount to managing talent quality and professional development.

    Firms that invest in HR today are not just solving today’s attrition problem they are building the foundation for tomorrow’s competitive advantage.

    Dr. Haresh Adwani envisions this future clearly: “The firms that thrive in the next decade will not be the ones with the most clients. They will be the ones with the most committed, well-supported teams. And that is an HR outcome.”

    Conclusion: The Best CA Firms Are Built by Great HR

    Let us return to the analogy we started with. HR in a CA firm is like salt in every dish. You do not see it in the client meeting. You do not see it in the audit report. You do not see it in the tax return. But it is there in the confidence of the team that prepared it, in the morale of the associate who worked late to get it right, in the loyalty of the senior who chose to stay another year.

    The role of HR in a CA firm is not a luxury. It is a necessity. It is the difference between a firm that merely survives each deadline and a firm that thrives through every season.

    As Nidhi Adwani wisely notes: “The best HR teams do not make noise. They create stability, consistency, and a culture where professionals can truly perform. And just like salt in a dish when HR gets it right, everything else falls into place.”

    If you are looking for a CA firm that values its people as much as its professional standards, connect with Adwani and Company today (https://www.adwaniandco.com/). Whether you need tax planning, audit services, or business advisory, you will work with a team that is supported, motivated, and committed to excellence.

    Reach out to Adwani and Company where people power drives professional excellence.

    Frequently Asked Questions

    1. What is the role of HR in a CA firm?

    The role of HR in a CA firm encompasses recruitment, training, performance management, workload distribution, retention strategies, and culture building. HR ensures the people behind the compliance work remain motivated and effective.

    2. Does a small CA firm need dedicated HR?

    Not necessarily at the start. Even assigning HR responsibilities to an existing team member and implementing basic processes (onboarding, reviews, leave management) can make a significant difference. As the firm grows beyond 15-20 people, a dedicated HR professional becomes essential.

    3. How does HR help during tax season in a CA firm?

    HR plays a critical role by forecasting workloads, managing shift rotations, monitoring team well-being, arranging logistical support (meals, transport), and ensuring compensatory leave after the season ends.

    4. What are the biggest HR challenges in CA firms?

    The top challenges are high attrition among junior staff, burnout during peak seasons, inconsistent training and onboarding, lack of structured career progression, and difficulty in attracting top talent due to poor employer branding.

    5. How can HR improve employee retention in a CA firm?

    Through competitive compensation, clear career paths, work-life balance initiatives, continuous learning opportunities, recognition programs, and transparent communication. Retention is a multi-factor outcome.

    6. Is HR compliance important for CA firms?

    Absolutely. CA firms must comply with PF, ESI, POSH Act, labor law requirements, and ICAI articleship norms. Non-compliance exposes the firm to legal risk which is particularly concerning for a profession built on compliance advisory.

    7. How does Adwani and Company approach the role of HR in a CA firm?

    Adwani and Company treats HR as a strategic function. From structured onboarding and mentorship programs to peak-season well-being initiatives and continuous professional development, the firm invests in its people as its primary competitive advantage. Learn more at https://www.adwaniandco.com/.

  • Credit Card Income Tax Notice: Essential Guide to Avoid Penalties

    Credit Card Income Tax Notice: Essential Guide to Avoid Penalties

    Credit Card Income Tax Notice
    Credit Card Income Tax Notice

    A Swipe Today, a Notice Tomorrow?

    Imagine this scenario. You have paid ₹12 lakh towards your credit card bills throughout the financial year. Your declared income? Just ₹6 lakh. You have never evaded tax intentionally. Your family uses your card. Friends occasionally swipe and repay. Business and personal expenses are all tangled up on a single plastic card.

    Sounds familiar, doesn’t it?

    Now here is the part most people miss. The Income Tax Department does not see each individual swipe. They do not know whether you bought groceries, booked a flight, or paid a hospital bill. What they see is one consolidated number: total credit card payments of ₹12,00,000. And when that number does not match your declared income, it raises a red flag that can lead to a credit card payments income tax notice.

    At Adwani and Company (https://www.adwaniandco.com/), we have seen this situation unfold more times than we can count. Professionals, salaried individuals, small business owners all caught off guard by a simple mismatch between their spending and their reported income. This blog will walk you through exactly how the Income Tax Department tracks your credit card payments, what Section 69C means for you, and how you can protect yourself from unnecessary scrutiny.

    As CA Dipesh Gurubakshani recently highlighted in a powerful insight: “It is not about how much you spend. It is about how well you can explain it.” This single line captures the reality that millions of credit card holders in India need to understand before it is too late.Understanding how a credit card income tax notice works is the first step toward protecting yourself from unnecessary scrutiny.

    Also Read:

    https://www.adwaniandco.com/blog/gst-appeal-pre-deposit-apl-01-fix-april-2026

    How the Income Tax Department Tracks Your Credit Card Payments

    The SFT Reporting Mechanism Under Rule 114E

    If you think your credit card payments are a private matter between you and your bank, think again. Under Rule 114E of the Income Tax Rules, financial institutions including banks and credit card companies are required to file a Statement of Financial Transactions (SFT) with the Income Tax Department.

    Here is the critical threshold: if your total credit card payments exceed ₹10 lakh in a single financial year, your bank is legally obligated to report this to the department. This information is then reflected in your Annual Information Statement (AIS), which the Income Tax Department uses to cross-verify your filed returns.

    According to the Income Tax Department of India (https://www.incometax.gov.in), the AIS is a comprehensive statement that contains details of all financial transactions carried out by a taxpayer during the year. It includes information about savings account interest, dividends, securities transactions, property purchases and yes, credit card payments.

    The takeaway? Every rupee you pay towards your credit card is being watched. Not in a sinister way, but through a data-driven compliance framework designed to identify discrepancies.

    What Exactly Gets Reported?

    Let us be specific. The SFT report for credit card payments includes:

    • Aggregate credit card bill payments made during the financial year.
    • Cash payments exceeding ₹1 lakh against credit card bills.
    • Any single transaction exceeding ₹10 lakh in credit card payments.

    This means even if no single transaction was large, if the cumulative payments cross the threshold, it gets flagged. And this is precisely where the mismatch between income and credit card payments income tax notice issues begin.

    Your Annual Information Statement Reveals Everything

    Since the introduction of the Annual Information Statement (AIS), taxpayers can now see exactly what the government sees. Your AIS, accessible through the Income Tax e-filing portal, displays:

    • Total credit card payments made during the year
    • High-value cash deposits
    • Mutual fund and stock transactions
    • Property purchases
    • Foreign remittances

    When your credit card payments and income tax return show a glaring mismatch, the system automatically flags your profile. This is not a manual process it is algorithm-driven, and it is getting smarter every year.

    Why a Credit Card Payments Income Tax Notice Gets Triggered

    The Simple Math the Tax Department Uses

    The logic is straightforward. If your declared income is ₹6 lakh but your credit card payments total ₹12 lakh, the department has a legitimate question: Where did the remaining ₹6 lakh come from?

    You might have perfectly valid explanations:

    • Your spouse or parents used your card and reimbursed you
    • A friend swiped for a purchase and transferred money back
    • Business expenses were routed through your personal card
    • You used savings from previous years

    But here is the problem valid explanations need valid documentation. Without proper records, you are left scrambling to prove the source of funds after receiving a credit card payments income tax notice.

    SituationTax ImpactAction
    Payments > ₹10 lakhReported in AIS (SFT)Track yearly usage
    Spending > IncomeNotice riskReconcile & justify source
    Third-party usageTreated as your expenseKeep bank proof
    No explanationTax under Sec 69C (~78%)Maintain documentation

    Here’s a real-world case of a credit card income tax notice

    Let us share a practical example that we frequently encounter at Adwani and Company.

    Mr. Sharma (name changed for privacy) is a mid-level IT professional in Pune.

    • Annual salary income declared: ₹8,50,000
    • Total credit card payments in FY: ₹14,20,000
    • Cash deposits in savings account: ₹2,50,000
    • Mutual fund investments: ₹1,80,000

    Now look at this from the tax department’s perspective:

    • Income: ₹8.5 lakh
    • Total outflows (credit card + investments + deposits): ₹18.5 lakh

    Where did the extra ₹10 lakh come from?

    Mr. Sharma’s wife, a homemaker, frequently used his credit card for household purchases, children’s tuition fees, and online shopping. His parents, who lived with him, occasionally used the card for medical expenses. His brother had repaid ₹3 lakh for a shared vacation.

    Mr. Sharma received a notice under Section 69C asking him to explain the source of funds for his credit card payments. Because he had maintained no records of reimbursements from family members and had no paper trail showing the flow of funds, what should have been a simple clarification turned into a stressful, months-long process.

    At Adwani and Company, our team helped Mr. Sharma compile bank statements, family member declarations, and a detailed reconciliation of every major transaction. The case was eventually resolved but it could have been entirely avoided with proper planning.

    Understanding Section 69C: Unexplained Expenditure and Your Credit Card

    What Is Section 69C?

    Section 69C of the Income Tax Act, 1961 deals with unexplained expenditure. If the Assessing Officer finds that a taxpayer has incurred expenditure that is not satisfactorily explained, and the source of such expenditure is not disclosed, the amount may be deemed as income and taxed accordingly.

    In the context of credit card payments, this means:

    • If your total credit card payments significantly exceed your declared income
    • And you cannot explain the source of those funds
    • the excess amount can be treated as your income and taxed at the applicable rate — 60% flat tax + 25% surcharge + 4% cess, resulting in an effective rate of 78% under Section 115BBE.

    Let us put this in perspective with numbers:

    If ₹5 lakh of your credit card spending is deemed unexplained under Section 69C, you could face a tax demand of approximately ₹3,90,000 (effective rate of 78%) on ₹5 lakh deemed as unexplained income — and this can go even higher if penalty under Section 271AAC is also levied) on money you may have already spent and possibly did not even owe tax on, had you documented it properly.

    How Section 69C Applies to Your Credit Card Payments Income Tax Notice

    The section does not require the department to prove that you earned undisclosed income. The burden of proof shifts to you, the taxpayer. You must demonstrate:

    1. Source of funds Where did the money come from?
    2. Nature of transactions What were the payments for?
    3. Reimbursement proof If someone else used your card, can you prove it?

    This is a significant legal burden, and it is one that catches many taxpayers unprepared. This is precisely why Dr. Haresh Adwani consistently reminds clients: “Section 69C does not punish spending. It punishes the inability to explain spending. Documentation is your shield.”

    For a deeper understanding of how tax provisions affect your finances, explore our tax advisory services at Adwani and Company (https://www.adwaniandco.com/).

    A credit card income tax notice under Section 69C can result in your unexplained spending being taxed at 60% plus surcharge.

    Common Scenarios That Lead to a Credit Card Payments Income Tax Notice

    1. Family Members Using Your Credit Card

    This is perhaps the most common scenario in Indian households. Your card, your liability but the spending is collective. The problem? Banks report the payment in your name, and the tax department associates it with your income.

    Solution: Maintain a simple monthly log of who spent what. Ask family members to transfer their share to your account via bank transfer (not cash) so there is a clear trail.

    2. Friends Swiping and Repaying Later

    We have all been there a group dinner, a vacation booking, a last-minute purchase. You swipe, they repay. But if the repayment is in cash or through informal channels, there is no documentary evidence.

    Solution: Always insist on bank transfers for repayments. A simple UPI transfer creates a timestamped, traceable record.

    3. Mixing Business and Personal Expenses

    Small business owners and freelancers are particularly vulnerable. When business expenses like client entertainment, travel, or supplies are charged to a personal credit card, the lines get blurred.

    Solution: Maintain separate credit cards for business and personal use. If that is not possible, keep a detailed spreadsheet categorizing each transaction. At Adwani and Company, we recommend this as a non-negotiable best practice for all our business clients.

    4. Reward-Chasing and Card Churning

    Many financially savvy individuals route all payments rent, insurance premiums, mutual fund SIPs through credit cards to maximize reward points. While there is nothing illegal about this, it inflates the total payment figure reported under SFT.

    Solution: Ensure your ITR accurately reflects all sources of income, including savings and investments, that justify the total outflow.

    5. EMI Conversions on High-Value Purchases

    High-value purchases converted to EMIs still reflect as lump-sum payments in SFT reporting. A ₹2 lakh laptop purchase on EMI appears as a ₹2 lakh credit card payment even though you are paying it in monthly installments.

    Solution: Keep purchase receipts and EMI conversion confirmation emails as supporting documentation.

    Each of these everyday situations can quietly build up the spending gap that eventually triggers a credit card income tax notice from the department.

    How to Protect Yourself from a Credit Card Payments Income Tax Notice

    Step 1: Track Your Annual Credit Card Payments

    This sounds obvious, but most people do not do it. At the start of every financial year, set up a simple tracker a spreadsheet, an app, or even a diary to log your monthly credit card payments. If you are approaching ₹10 lakh, be extra mindful about documentation.

    Step 2: Check Your Annual Information Statement (AIS)

    The AIS is available on the Income Tax e-Filing Portal (https://www.incometax.gov.in). Review it before filing your return. If the credit card payment figure does not match your records, investigate the discrepancy before the department does.

    Step 3: Maintain Documentation for Third-Party Usage

    If anyone else uses your credit card, create a paper trail. Bank transfers, written acknowledgements, or even email confirmations can serve as evidence.

    Step 4: Reconcile Income and Expenditure Before Filing

    Before filing your ITR, do a basic reconciliation. Does your total expenditure (including credit card payments, EMIs, rent, and cash withdrawals) align with your declared income plus savings? If there is a gap, identify and document the source.

    Step 5: Separate Business and Personal Cards

    If you are a freelancer, consultant, or business owner, this is non-negotiable. Use a dedicated card for business expenses and another for personal spending. This clean separation makes it infinitely easier to justify your credit card payments income tax filings.

    Step 6: Declare All Sources of Income

    If you have income from freelancing, capital gains, rental income, or any other source declare it. An undeclared ₹2 lakh freelancing income might be exactly the gap that turns your credit card spending into “unexplained expenditure.”

    Step 7: Consult a CA Before the Notice Arrives

    Proactive consultation is always less expensive than reactive damage control. At Adwani and Company (https://www.adwaniandco.com/), we conduct pre-filing reviews specifically designed to identify potential red flags in your financial profile including credit card spending patterns.The best way to avoid a credit card income tax notice is to maintain proper documentation of every third-party card usage.

    What to Do If You Have Already Received a Credit Card Payments Income Tax Notice

    If a notice under Section 142(1), 148, or any assessment-related provision has already arrived due to your credit card spending, here is your action plan:

    1. Do not panic, but do not ignore it. Every notice has a response deadline. Missing it escalates the situation.
    2. Gather all supporting documents bank statements, credit card statements, UPI transaction records, reimbursement proofs, and employer certificates.
    3. Prepare a detailed reconciliation showing the source of every major payment.
    4. Engage a qualified Chartered Accountant who has experience handling income tax scrutiny cases. The response needs to be precise, professional, and legally sound.

    Dr. Haresh Adwani and his team at Adwani and Company have successfully represented hundreds of clients in assessment proceedings. “A well-drafted response, backed by solid documentation, resolves most cases at the first stage itself,” he notes.

    The Bigger Picture: India’s Expanding Financial Surveillance

    The government’s ability to track financial transactions has grown exponentially in recent years. Between SFT reporting, AIS, the Faceless Assessment Scheme, Project Insight, and data analytics, the Income Tax Department now has a 360-degree view of your financial life.

    Credit card payments are just one piece of the puzzle. The department cross-references your:

    • Bank deposits and withdrawals
    • Property registrations
    • Mutual fund and equity transactions
    • Foreign remittances
    • GST filings (for businesses)

    Conclusion: Do Not Let Your Credit Card Become a Tax Liability

    Your credit card is a financial tool convenient, rewarding, and essential in today’s digital economy. But every payment you make creates a data point in the tax department’s vast surveillance network. The days of flying under the radar are long gone.

    A credit card payments income tax notice is not a criminal accusation it is a request for explanation. But an unprepared response can snowball into penalties, interest, and prolonged assessments.Remember, a credit card income tax notice is not a criminal charge but an unprepared response can lead to serious financial consequences.

    The solution is simple: track, document, and reconcile. And when in doubt, seek professional guidance.

    If you want expert guidance on credit card tax compliance, income tax notices, or financial planning, connect with Adwani and Company today (https://www.adwaniandco.com/). With decades of experience and a team led by seasoned professionals including CA Dipesh Gurubakshani and Dr. Haresh Adwani, we ensure your finances are always compliant, transparent, and optimized.

    Reach out to us today  because the best time to prepare is before the notice arrives.

    Now let us answer the most commonly searched questions about credit card income tax notice on Google.

    1. Can I receive a credit card payments income tax notice?

    Yes, absolutely. If your total credit card payments exceed ₹10 lakh in a financial year and are reported under SFT (Rule 114E), the Income Tax Department can issue a notice if there is a mismatch with your declared income.

    2. What is the SFT limit for credit card payments?

    Banks must report credit card payments exceeding ₹10 lakh in aggregate during a financial year. Additionally, cash payments exceeding ₹1 lakh against credit card bills are also reported.

    3. What happens under Section 69C if I cannot explain my credit card spending?

    Under Section 69C, unexplained expenditure can be treated as your income and taxed at 60% plus surcharge and cess under Section 115BBE. This can result in significant tax liability, interest, and penalties.

    4. Does using a credit card for someone else’s purchase create tax problems?

    It can, if you do not maintain proper documentation. Since the card is in your name, the payment is attributed to you. Always keep proof of reimbursement through bank transfers.

    5. How can I check if my credit card payments are reported in AIS?

    Log in to the Income Tax e-Filing Portal (https://www.incometax.gov.in), navigate to the AIS section, and review the SFT data. Your credit card payment details will be listed there.

    6. Is it necessary to declare credit card payments in my ITR?

    While you do not declare credit card payments directly in your ITR, your income declaration must be consistent with your overall spending. If total payments exceed your income, you should be prepared to explain the source.

    7. How can Adwani and Company help me with a credit card income tax notice?

    At Adwani and Company (https://www.adwaniandco.com/), we specialize in income tax compliance, notice responses, and tax planning. Our team can help you reconcile your credit card payments, prepare documentation, and respond effectively to any notice

    Author

    CA.Dipesh Gurubakshani. He is a Chartered Accountant with professional experience in audit, direct taxation, and accounting advisory services.

  • GST Appeal Pre-Deposit: APL-01 Field Now Editable After April 2026 Portal Fix

    GST Appeal Pre-Deposit: APL-01 Field Now Editable After April 2026 Portal Fix

    GST appeal pre-deposit
    GST appeal pre-deposit

    The Double Payment Trap: GST Appeal Pre-Deposit Paid Twice.The GST appeal pre-deposit process in India has a critical flaw and GSTN finally fixed it on 6 April 2026. Here is what happened and what you need to do now.Last week, a manufacturing client from Pune called me in a panic. He had already paid ₹10 lakhs as GST appeal pre-deposit through DRC-03 correctly, by the book. But when he opened APL-01 to file the appeal, the portal was demanding ₹10 lakhs again. He thought he had made an error. He hadn’t. The GST portal had a critical bug and it was affecting hundreds of businesses just like his.

    Imagine this. You have already paid your GST appeal pre-deposit through DRC-03. You followed the rules. You paid the correct 10% of the disputed tax demand. Then you open Form APL-01 to file your GST appeal and the portal ignores your payment entirely.

    It auto-populates a fresh 10% liability, locks the pre-deposit field, and demands you pay again. You have done nothing wrong. But the system is treating your valid payment as if it never happened and blocking your appeal unless you pay a second time.

      This Was Not a Rare Edge Case This was happening to hundreds of businesses across India filing GST appeals after paying pre-deposits through DRC-03. The portal mismatch was causing real financial and legal consequences including blocked ITC, delayed appeals, and unnecessary working capital stress.

    As I highlighted in a recent LinkedIn post, this exact situation was encountered with a client last month creating unnecessary delays, back-and-forth with the portal, and significant stress.

    The good news: GSTN fixed this on 6 April 2026. The pre-deposit field in Form APL-01 is now editable. But before you breathe easy, there are critical details you need to understand about the fix, the legal requirements that remain unchanged, and the correct filing process going forward.

    Also Read:

    https://www.adwaniandco.com/blog/essential-guide-to-upskilling-in-taxation-5-pillars-for-smart-ca-professionals

    What Is the GST Appeal Pre-Deposit and Why Does It Matter?

    Under Section 107 of the CGST Act, 2017, when a taxpayer disagrees with a GST demand order and wants to file an appeal before the Appellate Authority, they must mandatorily deposit 10% of the disputed tax amount as a pre-deposit. This amount is paid upfront as a security before the appeal is even admitted.

    According to guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC), this GST appeal pre-deposit must be made before or at the time of filing Form APL-01 the official appeal form submitted to the First Appellate Authority.

    GST Appeal Pre-Deposit Key FactsDetail
    Governing SectionSection 107, CGST Act 2017
    Pre-Deposit Amount10% of disputed tax (not penalty/interest)
    Form for Pre-DepositDRC-03 (voluntary payment)
    Form for Filing AppealAPL-01 (First Appellate Authority)
    Portal Fix Effective Date6 April 2026
    Legal Requirement StatusUNCHANGED Still Mandatory

    How the GST Portal Was Forcing Businesses to Pay Their Pre-Deposit Twice

    The problem arose from a disconnect between two GST portal systems the DRC-03 voluntary payment mechanism and the APL-01 appeal filing system. Here is the exact sequence of what was going wrong:

    Stage 1: Correct Payment Made via DRC-03

    A taxpayer receives a GST demand order. They calculate 10% of the disputed amount as the GST appeal pre-deposit and pay it correctly using Form DRC-03 the designated voluntary payment form under GST. They receive an ARN (Application Reference Number) confirming payment.

    Stage 2: Portal Ignores the DRC-03 Payment in APL-01

    When the same taxpayer opens Form APL-01 to file the appeal, the system does not map the DRC-03 payment to the relevant demand ID. Instead, the portal independently calculates 10% as a fresh liability, auto-populates this figure in the pre-deposit field, and locks it so the taxpayer cannot edit it.

    Stage 3: Forced into Double Payment or Appeal Abandonment

      The Impossible Choice Option A: Pay the pre-deposit again block double the required working capital, with no certainty of refund timeline.  Option B: Don’t pay and risk missing the appeal window entirely, leaving the original GST demand unchallenged and enforceable.

    For businesses with large demands running into lakhs or crores this portal error was causing serious cash flow crises and compliance failures. The GST portal had, in effect, made the GST appeal pre-deposit process dysfunctional for businesses who correctly paid via DRC-03 first.

    The April 6 Fix: GST Appeal Pre-Deposit Field Now Editable

    Effective 6 April 2026, GSTN deployed a targeted fix to Form APL-01.

      What Changed The pre-deposit amount field in Form APL-01 is now EDITABLE. Taxpayers can modify the auto-populated figure to match the actual amount already paid through DRC-03, instead of being forced into the system-calculated value.
    ScenarioBefore April 6, 2026After April 6, 2026
    Pre-deposit field in APL-01Locked Auto-populated onlyEditable Can match DRC-03
    DRC-03 payment mappingNot mapped to demand IDCan be reflected manually
    Double payment riskHigh Forced in many casesResolved
    Working capital impactDoubled unnecessarilyOnly 10% required as intended

    Real-World Example: How This Fix Saves a Business ₹10 Lakhs in Blocked Capital

    PRACTICAL EXAMPLE   Manufacturing Business, Pune GST Demand: ₹1 Crore  |  Pre-Deposit Required: ₹10 Lakhs Before April 6, 2026 (The Problem): Business pays ₹10 lakhs via DRC-03. Opens APL-01. Portal auto-calculates fresh ₹10 lakh liability, locks the field. To file the appeal, the business must pay another ₹10 lakhs total ₹20 lakhs blocked against a ₹1 crore demand. After April 6, 2026 (The Fix): Business pays ₹10 lakhs via DRC-03. Opens APL-01. Edits the pre-deposit field to show ₹10 lakhs (matching DRC-03 payment). Appeal filed. No duplicate payment. Only ₹10 lakhs blocked as legally required.   Working Capital Freed Up Immediately: ₹10,00,000  |  For businesses with crore-level demands, this saving is transformational.

    Who Is Most Affected by This GST Appeal Pre-Deposit Update?

    This update is directly and immediately relevant to the following categories of taxpayers:

    Businesses Under Active GST Demand Orders: If you have received a GST assessment order, adjudication order, or rectification order and plan to challenge it you must understand the updated APL-01 process before you file.

    Businesses That Already Paid via DRC-03: If you paid your GST appeal pre-deposit through DRC-03 before 6 April 2026 and have not yet filed APL-01 the editable field now allows you to correctly reflect that payment when you file.

    Businesses with High-Value GST Demands: For demands above ₹50 lakhs, the earlier double-payment issue was creating significant working capital pressure. This fix directly addresses that problem.

    CA Firms and GST Practitioners: The APL-01 filing workflow has changed. All client communication and filing procedures for GST appeals should be updated to reflect the April 2026 editable field change.

    What the Legal Requirement Still Says: The Portal Fix Changes Nothing Legally

    Here is the most critical point one that Dr. Haresh Adwani specifically emphasised. The portal fix does not change the legal requirement for the GST appeal pre-deposit.

    The obligation under Section 107 of the CGST Act remains fully intact. The Appellate Authority will still:

    • Verify that the correct 10% pre-deposit has been paid against the demand
    • Cross-check the DRC-03 payment details against the correct demand ID
    • Review the completeness and accuracy of the payment documentation
    • Flag any discrepancy between the amount stated in APL-01 and actual payment records
    • Reject or delay appeals where documentation does not support the pre-deposit claim
    ℹ  Important Reminder from Adwani & Company The GSTN portal change simplifies the technical filing process. It does not reduce your legal obligation. Proper reconciliation between your DRC-03 payment and your APL-01 filing supported by complete documentation is still essential for every GST appeal pre-deposit.

    Conclusion: The Portal Is Fixed But Your Documentation Must Be Airtight

    The GSTN fix to Form APL-01 effective 6 April 2026 is one of those quiet but consequential portal updates that carries significant real-world impact. It ends the double-payment trap that was forcing businesses to block double the legally required amount just to exercise their right to appeal a GST demand.

    However, as Dr. Haresh Adwani of Adwani and Company consistently emphasises: portal changes simplify processes, but they do not replace professional diligence. The Appellate Authority will continue to verify every GST appeal pre-deposit submission. Correct DRC-03 mapping, complete documentation, and accurate reconciliation remain the determining factors between a smoothly admitted appeal and a costly, delayed one.

    Filing a GST Appeal? Don’t Leave It to Chance. If you have received a GST demand notice, are planning to file an appeal, or are unsure whether your pre-deposit has been correctly mapped connect with Adwani and Company today. Dr. Haresh Adwani and our GST litigation team will review your case before you submit.

    1. What is the GST appeal pre-deposit requirement under Section 107?

    Under Section 107 of the CGST Act, 2017, a taxpayer filing an appeal before the First Appellate Authority must mandatorily pay 10% of the disputed tax amount as a pre-deposit before the appeal is admitted. This applies specifically to the disputed tax portion not to penalty or interest components.

    2. Can I pay the GST appeal pre-deposit through DRC-03?

    Yes. Form DRC-03 is the accepted method for making the GST appeal pre-deposit voluntarily. After the GSTN fix effective 6 April 2026, the APL-01 portal now allows you to edit the pre-deposit field to reflect the exact amount paid via DRC-03.

    3. What exactly changed in Form APL-01 on April 6, 2026?

    Prior to April 6, 2026, the pre-deposit field in Form APL-01 was locked. Effective 6 April 2026, GSTN made the pre-deposit field editable. Taxpayers can now manually modify the amount to reflect the actual payment made through DRC-03, eliminating the double-payment problem entirely.

    4. Will the Appellate Authority accept my DRC-03 payment as a valid pre-deposit?

    Yes, provided the DRC-03 payment is correctly mapped to the relevant demand ID and fully documented. The Appellate Authority will still verify the pre-deposit the portal fix changes the filing process, not the legal scrutiny of the payment.

    5. What happens if the DRC-03 payment is not mapped to the correct demand ID?

    If the payment is not correctly mapped, the Appellate Authority may treat the pre-deposit as insufficient or absent which can result in the appeal being rejected or delayed. Always verify the demand ID on your DRC-03 receipt before filing APL-01.

    6. Can I get a refund of the GST appeal pre-deposit if I win the appeal?

    Yes. If the appeal is decided in your favour and the demand is set aside or reduced, the pre-deposit amount is refundable. The refund process requires a separate refund application on the GST portal.

    7. Do I need a CA to file a GST appeal and manage the pre-deposit process?

    While there is no strict legal mandate, the complexity of the process including pre-deposit calculation, DRC-03 mapping, APL-01 documentation, and appellate proceedings makes professional CA assistance strongly advisable. Adwani and Company has handled hundreds of GST appeal cases successfully.

    Author:

    Dr. Haresh Adwani PhD (Commerce)  •  Adwani & Company, Pune Dr. Haresh Adwani holds a PhD in Commerce and brings over 20 years of expertise in GST compliance, income tax advisory, FEMA, and corporate law. Services include GST audit, ITR filing, GST appeal representation, notice response, NRI taxation, and FEMA compliance.
  • Essential Guide to Upskilling in Taxation: 5 Pillars for Smart CA Professionals

    Essential Guide to Upskilling in Taxation: 5 Pillars for Smart CA Professionals

    “In taxation, the professional who stops learning today becomes the professional who gives wrong advice tomorrow.”

    Essential Guide to Upskilling in Taxation: 5 Pillars for Smart CA Professionals
    Essential Guide to Upskilling in Taxation: 5 Pillars for Smart CA Professionals

    Upskilling in taxation is not a one-time checkbox for CA professionals it is a non-negotiable, continuous discipline. If you work in taxation as a Chartered Accountant, tax consultant, HR professional, or finance manager, you already know that GST rates change, Income Tax provisions get amended, and new CBDT circulars arrive on a Monday morning with immediate effect. The professional who relies solely on knowledge from their CA exams or a seminar three years ago is operating with an outdated map in a city that has been rebuilt.

    This is the philosophy at the core of Adwani and Company, one of India’s trusted CA firms, where Dr. Hareh Adwani has championed continuous taxation learning for over a decade. As Dr. Adwani often says: “Knowledge in taxation has an expiry date. Upskilling is how you stay relevant.”

    Why Upskilling in Taxation Is No Longer Optional

    India’s tax landscape is among the most dynamic in the world. Since the landmark GST rollout in 2017, there have been hundreds of notifications, circulars, and amendments. The Income Tax Department regularly revises filing norms, introduces new forms, and updates compliance timelines. The GST Portal itself undergoes technical and regulatory overhauls that directly impact how professionals file returns and respond to notices. Upskilling in taxation bridges the gap between what you once knew and what is currently applicable and in today’s environment, that gap widens faster than ever.

    Also Read:

    https://www.adwaniandco.com/blog/nri-tax-rules-10-critical-questions-before-returning-to-india

    The 5 Pillars of Upskilling in Taxation

    At Adwani and Company, Dr. Hareh Adwani has identified five core areas where upskilling in taxation must be focused and structured not ad hoc or reactive.

    1. Staying current with law changes

    Regular tracking of amendments in GST, Income Tax Act, Customs, and allied tax laws is the foundation of any serious taxation upskilling effort. This means reading CBDT and CBIC notifications as they are issued, understanding their practical impact, and updating internal processes accordingly. The Ministry of Corporate Affairs (MCA) also periodically revises compliance norms, making cross-law awareness essential.

    2. Understanding practical application in taxation upskilling

    Law reading alone is insufficient. A professional truly excels at continuous taxation learning when they can interpret how a new provision translates to real client situations whether it’s a manufacturing firm’s input tax credit reversal or a startup’s TDS obligations on ESOP payouts. Bridging theory and application is where competent upskilling in taxation delivers the most value.

    3. Building analytical and advisory thinking

    The shift from pure compliance to advisory is where upskilling in taxation truly delivers business value. As Dr. Hareh Adwani puts it: “Clients don’t just need someone to file returns they need a trusted advisor who can see around corners.” Analytical thinking, nurtured through case studies and scenario planning, is the vehicle for that shift.

    4. Leveraging technology in taxation upskilling

    AI-enabled reconciliation tools, automated notice management systems, and real-time GST data analytics are now mainstream. A professional committed to upskilling in taxation must be comfortable not just with the law, but with the technology platforms that implement it. Digital fluency is now inseparable from tax competency.

    5. Learning from experience and peers

    Internal case discussions, cross-team knowledge sharing, and peer review of complex tax positions are underrated but powerful upskilling mechanisms. At Adwani and Company, structured internal sessions where team members present recent cases have become a cornerstone of the firm’s ongoing taxation learning culture.

    What Continuous Upskilling in Taxation Really Looks Like

    There is a common misconception that continuous learning in taxation means attending webinars or subscribing to a newsletter. In practice, a genuine upskilling framework at the organizational level includes weekly law update briefings (20-minute internal sessions covering new notifications and tribunal decisions), monthly deep-dives into one complex topic through case studies, quarterly external training via ICAI or CPE providers, annual skill assessments to identify knowledge gaps, and technology training cycles whenever new portal features or automation tools are adopted. This structure is not theoretical Adwani and Company has implemented it precisely this way, with measurable results in client satisfaction, reduced compliance errors, and team retention.

    Elements of a Strong Taxation Learning Framework

    • Weekly law update briefings  20-minute internal sessions covering new notifications, circulars, and tribunal decisions.
    • Monthly deep-dives  One complex topic per month, explored through case studies and hypotheticals (e.g., “How do the new ITC reversal rules affect mixed supply businesses?”).
    • Quarterly external training  Structured programs from ICAI, industry bodies, or recognized CPE providers.
    • Annual skill assessments  Self-assessments or peer reviews to identify knowledge gaps and guide individual development plans.
    • Technology training cycles  Hands-on sessions whenever new portal features, compliance software updates, or automation tools are adopted.

    This is not theoretical. Adwani and Company has implemented precisely this structure, and the results in terms of client satisfaction, reduced compliance errors, and team retention have been measurable and significant.

    The HR Role in Building a Taxation Upskilling Culture

    Upskilling in taxation cannot happen in a vacuum it requires deliberate organizational design. HR plays a decisive role in designing regular technical training calendars aligned with the tax compliance cycle, creating platforms for knowledge sharing, encouraging cross-functional dialogue between tax and advisory teams, and supporting employees during peak-pressure periods like March year-end or GST annual return season. Most importantly, HR must promote a culture where asking questions is celebrated as intellectual curiosity, not penalized as ignorance. As Dr. Hareh Adwani has noted: “When people feel safe asking questions, the quality of work improves. Fear of looking uninformed is the enemy of upskilling.”

    HR Actions That Drive Taxation Upskilling

    • Designing regular technical training calendars aligned with the tax compliance cycle.
    • Creating platforms for knowledge sharing from internal wikis to structured debrief meetings.
    • Encouraging cross-functional dialogue between tax, audit, and advisory teams.
    • Supporting employees during peak-pressure periods (March year-end, GST annual return season) with guidance rather than adding workload.
    • Promoting a culture where asking questions is celebrated as intellectual curiosity, not penalized as ignorance.
    • As Dr. Hareh Adwani has noted in firm-wide communications: “When people feel safe asking questions, the quality of the work improves. Fear of looking uninformed is the enemy of upskilling.” This mindset, embedded in the culture of Adwani and Company, is what separates high-performing tax firms from average ones.

    ·        

    Real-World Cost of Not Upskilling in Taxation

    Consider a mid-sized manufacturing company whose internal tax team was unaware of the October 2023 CBIC circular clarifying the reversal of ITC on capital goods proportionately used for exempt supplies. The team filed GST returns without making the required reversal. When a GST audit was triggered, the company faced a demand of ₹18.4 lakh including interest and penalty for FY 2022-23 alone. Had their team participated in even one structured upskilling in taxation session covering that circular, the error would have been caught before filing. The cost of that single knowledge gap exceeded what a full year’s professional development program would have cost.

    How Technology Is Reshaping Upskilling in Taxation

    Upskilling in taxation today is inseparable from technology literacy. The GST Portal’s GSTR-2B reconciliation mechanism, the new Annual Information Statement (AIS) on the Income Tax portal, and MCA’s V3 portal all require tax professionals to be digitally fluent not just legally aware. Online learning platforms, micro-certification courses, and ICAI’s e-learning modules have made continuous taxation learning more accessible than ever. The barrier to upskilling is no longer access to content it is the discipline to prioritize it consistently.

    Government Sources Essential for Upskilling in Taxation

    Key Official Sources to Follow

    • Income Tax Department  Circulars, press releases, new ITR forms, and CBDT orders are published here first. Bookmarking this is non-negotiable.
    • GST Portal: Notifications, clarifications, and portal update advisories. The GSTN regularly publishes user advisories that contain critical compliance intelligence.
    • MCA Portal : For professionals advising companies, MCA’s circulars on company law, LLP regulations, and compliance deadlines are essential reading.
    • ITAT and High Court judgments: Case law shapes how provisions are interpreted in practice. Tracking key judicial decisions is a hallmark of an upskilled taxation professional.
    • At Adwani and Company, the team maintains curated trackers of government portal updates, ensuring that no significant change goes unnoticed or unaddressed in client work.

           The Organizational Payoff of Investing in Taxation Upskilling

    • The firms that invest seriously in upskilling in taxation do not just build more knowledgeable teams. They build competitive advantages that compound over time. They deliver fewer errors. Their professionals give more confident, proactive advice. Their clients stay longer, trust deeper, and refer more. Their teams experience lower burnout because competence breeds confidence, and confidence reduces anxiety in high-pressure situations.
    • This is what Dr. Hareh Adwani has built at Adwani and Company not a firm that waits for the next regulation to react, but one that anticipates change, upskills proactively, and delivers accordingly. Continuous taxation learning is not a cost on the P&L of a professional firm. It is the investment that protects and grows every other line on it.

    Conclusion: Upskilling in Taxation Is a Professional Commitment

    The professionals and firms that thrive in India’s evolving tax environment are not those with the most degrees or the longest experience they are those with the discipline to keep learning. Upskilling in taxation is not a seminar you attend once a year. It is a structured, conscious, and continuous commitment to staying current, thinking analytically, and serving clients with the highest standard of accuracy and insight.

    Dr. Hareh Adwani and the team at Adwani and Company have made this commitment the foundation of the firm’s identity. Success, as they demonstrate every day, does not come from what you already know. It comes from your willingness to keep learning consistently, consciously, and continuously.

    Frequently Asked Questions on Upskilling in Taxation

    1. What does upskilling in taxation mean for CA professionals?

    For CA professionals, upskilling in taxation means continuously updating knowledge of GST, Income Tax, and allied laws through structured training, practical case study reviews, technology literacy, and analytical skill development not just occasional seminar attendance.

    2. How often should a tax professional upskill?

    Given the frequency of amendments and notifications in India’s tax system, meaningful upskilling in taxation should happen monthly at a minimum with weekly awareness updates for active practitioners managing client compliance.

    3. What are the best sources for taxation continuous learning in India?

    The Income Tax Department portal, GST Portal, MCA website, ICAI e-learning modules, and curated legal databases like TaxSutra or TaxMann are the most reliable sources for authoritative taxation upskilling content.

    4. How can a CA firm build a taxation upskilling culture?

    By designing structured internal training programs, encouraging knowledge-sharing sessions, tracking government notifications systematically, and creating a safe environment where team members can ask questions and learn from complex client cases as practiced at Adwani and Company.

    5. What is the role of HR in supporting upskilling in taxation?

    HR professionals in CA firms play a critical role in designing training calendars, enabling cross-functional learning platforms, providing support during peak compliance seasons, and building a culture where continuous taxation learning is valued and rewarded.

    6. Does upskilling in taxation include technology training?

    Absolutely. Modern taxation upskilling must include proficiency in the GST Portal, Income Tax AIS/TIS, MCA V3, and practice management and automation tools. Technology literacy is now inseparable from tax competency.

    7. What happens if a tax professional does not upskill regularly?

    Outdated tax knowledge leads to compliance errors, missed credits or deductions, incorrect advice, penalty exposure for clients, and erosion of professional credibility. As illustrated in our example, a single knowledge gap can cost multiples of what an upskilling program would have required.

    Author

    Dr. Haresh Adwani

    PhD (Commerce) · Adwani & Company, Pune

    Dr. Haresh Adwani is a PhD holder in Commerce with over 20 years of experience in NRI taxation, FEMA compliance, international financial advisory, and tax notice resolution. He is one of Pune’s most trusted NRI tax advisors, specialising in residential status assessment, DTAA planning, and cross-border compliance for professionals returning from the US, UK, UAE, Canada, and Australia.

    Ready to Upskill or Work with Tax Experts?

    Whether you’re looking to strengthen your firm’s taxation learning culture or need expert advisory support for complex tax matters, Adwani and Company brings the experience and commitment to get it right.

  • NRI Tax Rules: 10 Critical Questions Before Returning to India

    NRI Tax Rules: 10 Critical Questions Before Returning to India

    NRI Tax Rules: 10 Critical Questions Before Returning to India
    NRI Tax Rules: 10 Critical Questions Before Returning to India

    Why NRI Tax Planning Before Returning to India Matters

    Every year, thousands of Non-Resident Indians working in the United States, Canada, United Kingdom, UAE, Australia, and other countries make the decision to return home. For many, it is driven by family, career opportunities, or simply the desire to reconnect with their roots. But what often comes as a surprise sometimes a very expensive one is how dramatically their tax situation changes the moment they step back on Indian soil for good.

    According to guidelines issued by the Income Tax Department of India, your residential status determines the scope of your tax liability. As an NRI, you are taxed only on income earned or received in India. The moment your status changes to Resident, however, India gains the right to tax your global income including income from foreign bank accounts, rental earnings from property abroad, dividends from US or UK stocks, and money you earn from global investments.

    This is why NRI tax planning before the return journey is not just advisable it is essential. Dr. Haresh Adwani of Adwani & Company has guided hundreds of returning NRIs through this transition, and consistently observes that those who plan ahead save significantly more, comply cleanly, and avoid stressful tax notices later.

    Important Alert

    Many NRIs believe their foreign income is permanently outside India’s tax net. This is incorrect once you become a tax resident. The planning window particularly your RNOR period is limited and time-sensitive.

    NRI Tax Rules: When Do You Become Resident, RNOR, or ROR?

    Understanding your residential status is the very first step in NRI tax planning in India. The Income Tax Act, 1961 defines three categories of residential status for individuals:

    StatusWhat It MeansIndian Tax on Foreign Income?
    NRI (Non-Resident Indian)Stays less than 182 days in India in a year (general rule)Not Taxable
    RNOR (Resident but Not Ordinarily Resident)Transitional status for returning NRIs; limited foreign tax exposurePartially Exempt
    ROR (Resident and Ordinarily Resident)Full tax resident; all global income taxable in IndiaFully Taxable

    The RNOR status is arguably the most valuable tool available to a returning NRI — but it is available only for a limited period, typically two to three financial years after returning, depending on your prior NRI history. During this window, your foreign income remains outside India’s tax net, giving you critical time to restructure investments and repatriate funds in a tax-efficient manner.

    Dr. Haresh Adwani strongly advises every returning professional to calculate their RNOR window as the very first step, ideally six to twelve months before the planned return date.

    Also Read:

    https://www.adwaniandco.com/blog/the-120-day-rule-that-is-silently-taxing-thousands-of-nris-in-india

    The 120-Day Rule That Silently Traps NRIs

    Here is a less-known but critically important provision in India’s NRI tax rules that catches many people completely off guard. Most NRIs believe that as long as they live outside India, their NRI status is protected. But there is a specific rule, introduced via the Finance Act 2020, that can strip your NRI status even if you live abroad.

    If the following three conditions are all true, you may be classified as a tax resident of India even though you live abroad:

    The Three-Condition Rule

    1. Your income from India exceeds ₹15 lakh in the financial year
    2. You stayed in India for 120 days or more in that financial year
    3. You stayed in India for 365 days or more cumulatively over the previous four financial years

    120 days sounds like a lot. But consider this you come for a wedding in December, stay through January. You visit again in April for a family function. You attend a relative’s medical emergency in August. Without consciously tracking, you may have crossed the 120-day threshold without even realising it. And if your Indian income salary from an Indian employer, rent from property, or dividend from Indian shares exceeds ₹15 lakh, India’s tax jurisdiction now extends to your global income.

    This is not a hypothetical risk. At Adwani & Company, we have advised clients who received income tax notices specifically because of this provision. The solution is straightforward track your travel days carefully and consult a qualified NRI tax advisor well before the end of each financial year (March 31).

    10 NRI Tax Questions You Cannot Afford to Ignore

    Based on years of advising professionals returning from the US, UK, UAE, Canada, Singapore, and Australia, Dr. Haresh Adwani has compiled the ten most important NRI tax questions that arise during the return transition. Each of these has significant financial implications if not addressed in advance.

    1. When exactly will I become Resident, RNOR, or ROR in India? 

    Your status depends on your physical presence over multiple financial years. Calculating this accurately determines your tax liability strategy.

    2. If I sell my US or UK stocks after returning, where will the capital gains be taxed?

     Gains on foreign stocks can be taxed in both India and the country where the assets are held, unless DTAA provisions apply. Selling while still RNOR can make a significant difference.

    3. How can I avoid double taxation between India and my country of work? 

    India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. Understanding which provisions apply to your income type is crucial.

    4. Can I claim Foreign Tax Credit (FTC) in India for taxes already paid abroad? 

    Yes, under Rule 128 of the Income Tax Rules, you can claim credit for foreign taxes paid. However, the process requires Form 67 and specific documentation.

    5. What happens to my foreign bank accounts and investments once I become a resident?

     Your NRE and FCNR accounts must be re-designated to RFC (Resident Foreign Currency) accounts. Failure to do so is a FEMA violation with serious penalties.

    6. Do I need to report foreign assets in my Indian income tax return? 

    Absolutely. Once you become a full Resident (ROR), you must disclose all foreign assets, accounts, and income in Schedule FA of your ITR. Non-disclosure attracts severe penalties under the Black Money Act.

    7. Should I sell some investments while I am still RNOR rather than waiting until ROR? 

    In many cases, yes. Since foreign income is not taxable during the RNOR period, strategic divestment of foreign assets during this window can produce significant tax savings.

    8. How are RSUs, ESOPs, and stock compensation from foreign employers taxed in India? 

    This is complex. RSUs may be taxed both when they vest (as salary income) and when sold (as capital gains). DTAA provisions and the nature of your resident status at both events determine the outcome.

    9. What are the tax implications if I sell property in India after returning? 

    The tax treatment depends on the holding period, whether you are RNOR or ROR at time of sale, and available exemptions under Section 54 or 54EC of the Income Tax Act.

    10. How can I bring my foreign savings to India in a legal and efficient way? 

    FEMA governs the repatriation of foreign funds. The RFC account and LRS (Liberalised Remittance Scheme) framework provides structured pathways to bring money in compliantly.

    Real-World Example: IT Professional Returning from the US

    Rajesh S., Software Engineer San Francisco to Pune

    Rajesh worked in the US for 14 years on an H-1B visa and decided to return to India in July 2025. He had accumulated USD 280,000 in a US brokerage account (mostly tech stocks with significant unrealised gains), USD 95,000 in a 401(k) retirement account, and owned a property in Pune generating ₹18 lakh annual rent.

    Without Planning: Had Rajesh returned and immediately converted his NRE account, sold his US stocks after becoming ROR, he would have faced Indian capital gains tax on the full appreciation potentially ₹40–50 lakh in additional tax liability, plus mandatory disclosure of all foreign assets.

    With Planning via Adwani & Company: By calculating his RNOR window (approximately 2 financial years), Rajesh sold his US stocks strategically during that period when foreign income was not taxable in India. His NRE and FCNR accounts were re-designated to RFC accounts in time. Form 67 was filed correctly to claim US tax credit. Penalty exposure was eliminated entirely.

    FEMA Compliance for Returning NRIs: What You Must Do

    The Foreign Exchange Management Act (FEMA) governs how Indian residents including returning NRIs manage their foreign currency assets, bank accounts, and international transactions. Violations under FEMA are taken seriously by the Enforcement Directorate and can attract penalties many times the value of the transaction involved.

    As per Reserve Bank of India (RBI) guidelines, the following changes must be made immediately upon returning to India as a resident:

    Account/Asset TypeAction RequiredDeadline
    NRE (Non-Resident External) AccountRe-designate to RFC or Resident Savings AccountImmediately upon change of status
    FCNR (Foreign Currency NR) AccountRe-designate to RFC accountAt maturity or immediately
    NRO (Non-Resident Ordinary) AccountRe-designate to ordinary resident savings accountImmediately upon change of status
    Foreign Bank AccountsDeclare in ITR Schedule FA; permitted to retain under FEMAAnnual ITR filing deadline
    Foreign InvestmentsDeclare and report under FEMA OI regulationsAnnual reporting cycle

    Dr. Haresh Adwani advises every returning NRI to consult an authorised FEMA practitioner as a first step not after they have returned, but three to six months before the anticipated return date. This provides time to restructure accounts, repatriate funds, and file necessary declarations without rushing.

    Learn more about our NRI FEMA Compliance Services at Adwani & Company.

    Pre-Return NRI Tax Planning Checklist

    If you are planning to return to India within the next six to eighteen months, use this checklist to ensure you enter the transition fully prepared:

    • Calculate your RNOR eligibility window based on your exact NRI years — this is your most valuable planning asset
    • Identify all foreign assets: stocks, mutual funds, retirement accounts (401k, IRA, pension), bank accounts, and property
    • Evaluate which assets to sell before returning versus during the RNOR window versus after becoming ROR
    • Check whether DTAA provisions between India and your country of residence apply to your income types
    • Arrange re-designation of NRE, FCNR, and NRO accounts to RFC before or immediately upon return
    • Obtain Form 67 documentation for claiming Foreign Tax Credit on income taxed abroad
    • Ensure your ITR includes Schedule FA for all foreign assets once you attain ROR status
    • Consult a qualified NRI tax advisor ideally one registered with ICAI and experienced in international tax

    Read our detailed guide on NRI Taxation and FEMA Compliance — A Complete Handbook for deeper coverage of each checklist item.

    DTAA Benefits: How Returning NRIs Can Avoid Double Taxation

    One of the most powerful tools available to a returning NRI is the Double Taxation Avoidance Agreement (DTAA). India has signed DTAAs with over 90 countries including the United States, United Kingdom, UAE, Canada, Australia, Singapore, and Germany. These agreements ensure that the same income is not taxed twice once in the country where it is earned and again in India.

    However, DTAA benefits are not automatic. You must actively claim them, file the correct forms, and provide the necessary documentation including Tax Residency Certificates (TRC) and Form 10F. The specific provisions vary significantly by country and income type. For instance, the India-US DTAA has specific provisions for employment income, dividends, and capital gains each with different conditions and rates.

    DTAA Quick Tip

    For NRIs returning from the UAE, note that the India-UAE DTAA was renegotiated and updated. The provisions affecting salary income and capital gains have changed. Ensure you are referencing the most current treaty text, or consult Adwani & Company for up-to-date guidance specific to your income profile.

    Conclusion: Your Return to India Deserves a Well-Crafted Tax Strategy

    Returning to India after years abroad is an emotionally significant and practically complex decision. The financial implications spanning NRI tax rules, RNOR status planning, FEMA compliance, DTAA benefits, and foreign asset disclosure require careful attention and expert guidance well before the moving date.

    The good news is that with proper NRI tax planning, the transition can be managed smoothly. The RNOR window is a legitimate and powerful tool. DTAA provisions can significantly reduce your tax burden. FEMA compliance, when handled proactively, is straightforward. The 120-day rule, once you are aware of it, is entirely manageable.

    The critical factor is timing. Tax planning done before the return preserves options. Tax planning attempted after the return or worse, after a notice from the Income Tax Department is reactive, expensive, and stressful. As Dr. Haresh Adwani consistently advises clients: the best time to plan your return tax strategy is at least six to twelve months before you board that flight home.

    Frequently Asked Questions:

    1. What is RNOR statusand how does it benifit a returning NRI?

    RNOR stands for Resident but Not Ordinarily Resident. It is a transitional tax status available to returning NRIs for a limited period typically two to three financial years after returning, depending on the number of years they were NRI. During the RNOR period, India does not tax income that is earned outside India and not received in India. This makes the RNOR window a critical opportunity to restructure foreign investments and repatriate funds tax-efficiently. Calculating your exact RNOR window is the most important first step in any returning NRI tax planning exercise.

    2. Do i need to report my foreign bank accounts after returning to india?

    Yes. Once you attain ROR (Resident and Ordinarily Resident) status, you are required to disclose all foreign bank accounts, financial assets, and income from foreign sources in Schedule FA (Foreign Assets) of your Income Tax Return. Non-disclosure is treated as a violation under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which prescribes severe penalties including a flat 30% tax plus a 90% penalty on undisclosed amounts. Proactive disclosure and professional guidance from a qualified NRI tax advisor is strongly recommended.

    3. How are RSUs and ESOPs from a US employer taxed when i return to india?

    RSUs (Restricted Stock Units) and ESOPs (Employee Stock Option Plans) granted by foreign employers are taxed at two points first at vesting (treated as perquisite or salary income) and again at sale (capital gains). If you are RNOR when the shares vest, there may be no Indian tax at vesting for foreign-source income. However, gains on sale after becoming ROR are fully taxable in India. The India-US DTAA may provide relief on employment income. Given the complexity, consulting a specialist NRI tax advisor who handles cross-border equity compensation is highly advisable.

    4. can keep my NRE account after returning to india?

    No. Under FEMA regulations, once your residential status changes to Resident Indian, your NRE (Non-Resident External) account must be re-designated to a Resident Foreign Currency (RFC) account or a regular resident savings account. Continuing to operate an NRE account after becoming a resident is a FEMA violation and can attract penalties under the Enforcement Directorate. The re-designation must happen promptly upon change in status. Similarly, FCNR accounts must be re-designated to RFC accounts at maturity.

    5.Is the 120-day rule applicable to all NRIs only thoes with high indian income?

    The 120-day rule applies specifically to NRIs whose Indian income exceeds ₹15 lakh in the relevant financial year. If your Indian income is below this threshold, the standard 182-day rule applies for determining NRI status. However, if your Indian income from sources such as rent, salary from Indian companies, or interest from NRO accounts exceeds ₹15 lakh, then staying 120 days or more in India in a financial year, combined with a cumulative stay of 365 days in the previous four years, can make you a resident for tax purposes. Tracking your India travel days carefully is essential if you have significant Indian income.

    6.what is best time to sell foreign stock-before returning or after returning

    The timing of foreign asset liquidation is one of the highest-impact NRI tax planning decisions. Selling before returning (when you are still an NRI) means the gains are taxed only in the country where the asset is held not India. Selling during the RNOR window means the gains from foreign sources are not taxable in India under current provisions. Selling after becoming ROR means full Indian capital gains tax applies. The optimal strategy depends on the specific country, the type of asset, applicable DTAA provisions, and your income profile. Dr. Haresh Adwani and the team at Adwani & Company specialise in creating personalised divestment plans for returning NRIs.

    7. How do i claim Foreign Tax Credit(FTC) in india?

    Foreign Tax Credit in India is governed by Rule 128 of the Income Tax Rules, 1962. To claim FTC, you must file Form 67 on the income tax e-filing portal before the due date of your return. You will need documentation including a tax payment certificate or withholding statement from the foreign country confirming the taxes paid. The credit is available against the Indian tax payable on the same income, up to the Indian tax liability on that income. FTC cannot create a refund it can only reduce your Indian tax to zero on the relevant income. Missing the Form 67 deadline means losing the credit entirely.

    Author

    CA. Manish R. Mata Practising In India (Ex – PwC),  At Adwani & Co LLP leads the International Accounting & Tax Support vertical, delivering structured execution assistance to US CPA firms and overseas businesses.

  • The 120: Day Rule That Is Silently Taxing Thousands of NRIs in India

    The 120: Day Rule That Is Silently Taxing Thousands of NRIs in India

    The Dangerous Myth Many NRIs Still Believe

    “I live outside India, so I am an NRI. My foreign income is safe.”

    This belief simple, logical-sounding, and widely held is wrong for a growing number of NRIs. And the consequences of getting this wrong are not a minor inconvenience. They can fundamentally change how your entire global income is taxed, expose previously protected foreign accounts to Indian disclosure requirements, and trigger tax liabilities you had no idea were coming.

    Dr. Haresh Adwani of Adwani & Company regularly encounters NRI clients who discover their residential status has shifted not because they moved back to India, but because they visited more frequently than they tracked. A wedding here. A family emergency there. A few extra weeks that felt harmless. And then the days added up past a number that changed everything: 120.

    According to the Income Tax Department of India, a specific amendment introduced via the Finance Act 2020 tightened the rules for determining NRI status for individuals with significant Indian income. Understanding this rule is now essential for every NRI who visits India regularly not just those planning to return permanently.

    The Core Risk

    If you have Indian income exceeding ₹15 lakh and spend 120 days or more in India in a financial year while also having stayed 365+ days cumulatively over the previous four years India may tax you as a resident, including on your foreign income.

    The 120-Day Rule That Is Silently Taxing Thousands of NRIs in India
    The 120-Day Rule That Is Silently Taxing Thousands of NRIs in India

    The 120-Day NRI Tax Rule Explained

    The standard rule most NRIs know is the 182 day rule: if you spend fewer than 182 days in India in a financial year, you are classified as a Non Resident Indian and your foreign income is not taxable in India. This rule still applies but with an important and often overlooked exception introduced by the Finance Act 2020.

    Under the amended provisions of Section 6 of the Income Tax Act, 1961, a person who is a citizen of India or a Person of Indian Origin (PIO) is treated as a resident of India if all three of the following conditions are simultaneously met:

    The Three-Condition Test Section 6, Income Tax Act 1961

    1. Indian Income Threshold: Your total income from Indian sources including salary from Indian employers, rental income from property in India, interest from NRO accounts, or dividends from Indian companies exceeds ₹15 lakh in the relevant financial year.

    2. Current Year Stay: You stayed in India for 120 days or more during that financial year (April 1 to March 31), regardless of whether the stays were continuous or spread across multiple visits.

    3. Cumulative Stay: You stayed in India for a cumulative total of 365 days or more over the four financial years immediately preceding the relevant year.

    This rule was specifically introduced to address cases where high-income individuals were spending substantial time in India while claiming NRI status to shield their foreign income from Indian tax. The 15 lakh threshold ensures it does not affect NRIs with limited Indian income, but for NRIs with property, investments, or employment connections in India generating significant returns, this rule is highly relevant.

    Also Read:

    https://www.adwaniandco.com/blog/financial-modeling-for-business-valuation-normalized-eps-explained-india-guide

    How 120 Days Add Up Without You Noticing

    120 days is not a lot. It is approximately four months. And for an NRI who has family, property, or business interests in India, four months across a year is entirely conceivable even without any intention to stay long-term.

    Here is how a typical NRI’s year might look without conscious tracking:

    December to January

    Annual family visit over the holiday season. Stayed a bit longer to attend a cousin’s wedding.38 days

    March to April

    Parent’s health issue. Flew down urgently, managed medical matters, returned after recovery.28 days · Running total: 66

    June

    Brief trip to handle property matters and meet the family lawyer. Extended slightly for a puja.18 days · Running total: 84

    October to November

    Diwali visit. Stayed on for sibling’s anniversary function and a school reunion.40 days · Total: 124 days ⚠ Limit crossed

    In the above scenario, no single trip looks excessive. But the cumulative total of 124 days combined with Indian rental or investment income exceeding ₹15 lakh may be enough to trigger the residency test. Most NRIs in this situation do not discover the problem until they receive an Income Tax notice or an AIS (Annual Information Statement) query from the tax department.

    What Changes When You Lose NRI Status Under the 120-Day Rule

    The moment India classifies you as a tax resident even temporarily the scope of your taxable income expands dramatically. India’s tax jurisdiction now potentially extends to:

    Income TypeBefore (as NRI)After (as Resident)
    Indian salary or rental incomeTaxable in IndiaTaxable in India
    Foreign salary / employment incomeNot TaxableFully Taxable
    Interest from foreign bank accountsNot TaxableFully Taxable
    Rent from property outside IndiaNot TaxableFully Taxable
    Capital gains from foreign stocksNot TaxableFully Taxable
    Dividends from global investmentsNot TaxableFully Taxable
    Foreign assets disclosure required?Not RequiredMandatory in ITR

    Beyond the income tax dimension, the change in residency status also triggers FEMA obligations. Foreign bank accounts that were perfectly legal as an NRI must now be reconsidered. NRE account operations as a resident are a FEMA violation. The Reserve Bank of India requires specific account re-designations that many NRIs are unaware of.

    FEMA Alert

    Operating an NRE (Non-Resident External) bank account after your residential status changes to Resident is a violation of FEMA regulations. Re-designation to an RFC (Resident Foreign Currency) account is mandatory and must happen promptly. Learn more about FEMA Compliance for NRIs at Adwani & Company.

    RNOR Status: The Safety Net You May Still Have

    There is some good news. Even if your residential status does shift from NRI to Resident, you may not immediately become an ROR (Resident and Ordinarily Resident). Depending on your prior years of NRI status, you may qualify for RNOR Resident but Not Ordinarily Resident.

    RNOR is a transitional status that continues to protect your foreign income from Indian taxation for a limited period typically two to three financial years. A person qualifies as RNOR if they have been non-resident in India in at least 9 of the 10 financial years preceding the relevant year, or have stayed in India for 729 days or fewer in the 7 preceding financial years.

    The RNOR Advantage

    During RNOR status, income earned outside India that is not received or deemed to arise in India remains outside India’s tax net. This protection window if you qualify gives you time to restructure investments, repatriate funds, and plan asset liquidation before full ROR status applies. Identifying and using this window is a core part of Dr. Haresh Adwani’s NRI tax advisory practice.

    Real Example: How One NRI Was Caught Off Guard

    Priya K., Finance Professional London to Repeated India Visits

    Priya worked in London for 9 years. She owned two flats in Mumbai generating a combined rental income of 22 lakh per year. She visited India frequently a December family trip, an April medical visit for her mother, a July trip for property matters, and a Diwali trip in November. Total India stay for the financial year: 131 days.

    Priya had no plans to return to India permanently. She considered herself a straightforward NRI. She had never counted her days.

    What Happened: With Indian rental income of ₹22 lakh (above 15 lakh threshold), 131 India days in the year, and cumulative stays well above 365 days in the preceding four years, all three conditions under Section 6 were satisfied. Priya was reclassified as a Resident for that financial year. Her UK salary, London savings account interest, and gains from UK equity funds previously untouched by Indian tax became taxable in India. Her NRE account operation during that period was also flagged as a FEMA concern.

    Lesson: Indian income above ₹15 lakh + 120+ India days = a combination you must actively monitor every financial year not just when planning a permanent return.

    Two Critical Things to Check Before March 31 Every Year

    You do not need to overhaul your life to manage this risk. But you do need to be proactive. Dr. Haresh Adwani recommends every NRI with significant Indian income complete two simple checks before March 31 of each financial year:

    1. Count your India days precisely. Add up every day you were physically present in India between April 1 and the current date. Include partial days. Compare against the 120-day threshold. If you are approaching it, plan your departure accordingly.

    2. Review your Indian income for the year. Total up all income from Indian sources rent, NRO interest, dividends from Indian shares, salary from Indian employers. If this exceeds ₹15 lakh and you are near 120 India days, the risk is real.

    Also Check Your Cumulative Stay

    Even if this year’s India stay is below 120 days, check your cumulative India days across the previous four financial years. If you are approaching or have crossed 365 cumulative days over that period, your buffer for the current year is already reduced. Tracking this four year rolling total is an important part of ongoing NRI residency status management.

    Read our detailed guide on NRI Residential Status and Day-Count Management — A Practical Guide for year-by-year tracking strategies.

    Conclusion: 120 Days Is Not Just a Number It Is a Tax Turning Point

    The 120-day NRI tax rule is not obscure fine print. It is an active provision in the Income Tax Act that has real consequences for any NRI with meaningful Indian income and regular visits home. The mistake most people make is not wilful it is simply a lack of awareness. Nobody warns you at the airport. No bank sends you a reminder. The days accumulate quietly, and the tax implications arrive months later via a notice or during ITR filing.

    The solution is equally simple: awareness and tracking. Know which rule applies to you 182 days or 120 days based on your Indian income level. Track your India days carefully across every financial year. Check the four-year cumulative total annually. And if you are approaching either threshold, plan the calendar accordingly or consult a qualified NRI tax advisor before year-end.

    As Dr. Haresh Adwani consistently advises NRI clients: one hour of planning before March 31 can prevent one year of tax complications after it. Do not let 120 days become the most expensive number in your financial life.

    Frequently Asked Questions

    1. Does the-day rules apply to all NRIs or only those with high Indian income

    The 120 day rule applies specifically to NRIs whose total Indian income exceeds 15 lakh in the relevant financial year. If your Indian income is below ₹15 lakh, the standard 182 day rule continues to apply. However, ₹15 lakh is not a high threshold it is approximately ₹1.25 lakh per month. Many NRIs with property generating rental income, NRO fixed deposits, or dividend income from Indian investments can easily cross this level. It is worth calculating your Indian income annually to know which rule applies to you in any given year.

    2. Are days in Transit through indian airports counted toward the 120 days?

    Generally, days spent in India in transit where you do not leave the international transit area of the airport are not counted as days of presence in India. However, if you exit the airport and enter Indian territory, even briefly, that day counts. With the increasing prevalence of stopovers and long haul connections through Indian airports, NRIs should be cautious. If in doubt, it is safer to route connecting flights through airports outside India or to keep international transit strictly within the airport’s transit zone. This is a detail worth clarifying with a qualified NRI tax advisor for your specific travel pattern.

    3. If i become a resident due to the 120-days rule, do i loose NRI status permanently?

    No. Residential status in India is determined year by year, based on physical presence in each financial year. If you become a resident in one financial year due to the 120 day rule, but in the following year you stay below the applicable threshold (182 days under the standard rule, or 120 days if the three-condition test again applies), you can revert to NRI status for that next year. However, the years in which you were classified as resident will be counted in the rolling four year cumulative stay calculation. This is why tracking your stay carefully each year is important a single year of resident status can have multi year implications for the cumulative stay count.

    4. what happens to my NRE account if i am classified as resident under the 120-day rule?

    Under FEMA regulations, NRE accounts are meant exclusively for Non Resident Indians. If your residential status changes to Resident even for one financial year under the 120day rule your NRE account must be re-designated to an RFC (Resident Foreign Currency) account or a regular resident savings account. Failure to do so is a FEMA violation. The interest income earned on NRE accounts is tax exempt as long as you maintain NRI status. Once you become a resident, NRE interest becomes taxable. The NRO account, on the other hand, is the appropriate account for residents with Indian source income. Proactive account management is essential, and Adwani & Company guides NRI clients through this process.

    5. can RNOR status protected my foreign income even if I am reclassified as resident?

    Possibly, but it depends on your specific history. RNOR (Resident but Not Ordinarily Resident) status is available if you qualify under the conditions in Section 6(6) of the Income Tax Act specifically, if you have been non-resident in India in 9 of the 10 immediately preceding financial years. If you qualify as RNOR rather than full ROR, your foreign income that is not received in India remains outside India’s tax net. This is an important distinction it means the transition from NRI to Resident does not automatically make all your foreign income taxable if RNOR applies. Dr. Haresh Adwani can assess your specific years of NRI history to determine whether RNOR protection applies.

    6. Do i need to disclose foreign bank accounts if I become resident for just one year?

    Yes. For the financial year in which you are classified as Resident and Ordinarily Resident (ROR), you are required to disclose all foreign bank accounts and assets in Schedule FA of your Income Tax Return. If you qualify as RNOR rather than ROR, the disclosure obligations are less extensive but still exist for assets with Indian connections. Non disclosure under the Black Money Act can attract penalties of 90% of the undisclosed amount plus 30% tax, regardless of whether the non-disclosure was intentional. Voluntary disclosure, guided by a qualified NRI tax advisor, is always the safest approach.

    7. I have rental Income from Two indian Properties totalling Rs.18Lakh.How may days can i safely stay in india?

    Since your Indian income exceeds ₹15 lakh, the 120-day rule applies to you rather than the standard 182-day rule. This means you must ensure your India stay does not reach or exceed 120 days in any financial year, provided your cumulative India stay over the preceding four years has crossed or is approaching 365 days. If the cumulative four year stay has not yet reached 365 days, you have more flexibility but it is worth tracking carefully as this total will grow over time. The practical safe limit, to maintain a comfortable buffer, is typically 100 to 105 days per year if both conditions are close to being met. Consulting Dr. Haresh Adwani at Adwani & Company for a personalised residency status assessment is strongly advisable given your income level.

    Author

    Dr. Haresh Adwani

    PhD (Commerce) · Adwani & Company, Pune

    Dr. Haresh Adwani is a PhD holder in Commerce with over 20 years of experience in NRI taxation, FEMA compliance, international financial advisory, and tax notice resolution. He is one of Pune’s most trusted NRI tax advisors, specialising in residential status assessment, DTAA planning, and cross-border compliance for professionals returning from the US, UK, UAE, Canada, and Australia.

  • Ultimate Financial Modeling to Normalize Business Valuation in India

    Ultimate Financial Modeling to Normalize Business Valuation in India

    CA Manish Mata May 2026 10 min read

    An experienced founder sat across prospective investors for his business fundraising exercise. On paper, his company’s earnings per share (EPS) was ₹63 impressive, but not spectacular. Yet the founder believed the true earning capacity was closer to ₹82. The investors were skeptical. Financial modeling for business valuation plays a critical role in how investors assess a company’s true earning potential.

    That changed the moment he presented a financial model. Through scenario-based analysis and transparent normalisation of non-recurring costs, the team arrived at a normalised EPS of ₹79. Nobody challenged the number not because it was high, but because the logic behind it was airtight.

    This is the central insight of modern business valuation: investors care far more about the story and rigour behind the numbers than the numbers themselves. It is a principle that CA Dr. Haresh Adwani and the team at Adwani and Company have applied across hundreds of fundraising in India.

    Key takeaway A well-structured financial model can lift your business valuation by 30 to 40% not by inflating numbers, but by making the true earning power visible and defensible to investors.

    Benefits of Financial Modeling for Business Valuation


    • Improves investor confidence
    • Makes valuation assumptions transparent
    • Highlights true earning potential
    • Increases chances of higher valuation

    What Is Financial Modeling for Business Valuation in India?

    Financial modeling is the process of creating a structured representation of a business’s financial performance, usually in Excel or specialized software. It helps founders, investors, and analysts understand a company’s earning potential, cash flows, and valuation under different scenarios. By clearly modeling assumptions, revenues, and costs, investors can make informed decisions rather than relying solely on past financial statements.

    Financial modeling for business valuation in India can significantly improve valuation through normalized EPS adjustments and scenario analysis

    How to Calculate Normalized EPS (Step-by-Step)

    1. Start with reported net income: Take the net profit from your financial statements.
    2. Identify non-recurring items: Include one-time costs, extraordinary gains, or temporary losses.
    3. Adjust for these items: Add back non-recurring expenses or subtract non-recurring income.
    4. Divide by total shares outstanding: This gives the normalized earnings per share.

    Formula for Normalized EPS

    Normalized EPS = Adjusted Net Income 
                    Total Shares Outstanding

    Example: If adjusted net income is ₹5.52 crore and shares outstanding are 6,70,000, Normalized EPS = ₹82.39.

    Example of a Financial Model for Business Valuation (India)

    Imagine a mid sized Indian manufacturing company projecting its revenue for the next 3 years:

    • Historical revenue: 10–12 crore
    • Adjustments for non recurring expenses: 1.5 crore
    • Normalized EBITDA: 3.8 crore
    • Scenario analysis: Base, Upside, Downside
      The model shows investors exactly how the company arrives at a normalized EPS of Rs.79, making valuation credible and defensible.

    1. How Business Valuation Has Changed: From Multiples to Models

    The old approach vs. the modern standard

    Until roughly a decade ago, Indian business valuations were largely mechanical: take the last three years’ profits, apply an industry multiple, arrive at a figure. A company with 10 crore profit valued at 10× equals 100 crore. Simple.

    The 2008 global financial crisis changed this permanently. Companies with impressive reported earnings collapsed because those earnings were not sustainable. Sophisticated investors especially institutional funds and PE firms learnt to demand transparency in the assumptions that drive valuations, not just headline figures.

    Why founders who model well get better valuations

    Consider two founders approaching the same investor with the same underlying business. Founder A presents raw historical financials. Founder B presents a normalised model with documented adjustments, three growth scenarios, and sensitivity tables.

    Founder B almost always gets a higher valuation and closes faster. The model does not change the business; it makes the business understandable to the person writing the cheque.

    2. What Is a Financial Model? Core Components Explained

    A financial model is a structured hypothesis about how your business creates value. It is not a prediction predictions are always wrong. It is a framework that makes the assumptions visible, so investors can agree or disagree with specific inputs rather than rejecting the entire valuation.

    The four layers of a credible valuation model

    • Historical analysis (3–5 years): Revenue trends, cost structure, margin evolution, and cash conversion efficiency. This anchors the model in reality.
    • Normalisation layer: Adjustments that remove one time, non recurring, or distorting items from reported earnings. This reveals the true earning power of the business.
    • Forward projections: Revenue and cost forecasts tied explicitly to operational drivers not just a straight line trend.
    • Scenario and sensitivity analysis: At minimum, a base case, a downside case, and an upside case, with clear articulation of the key variables in each.

    Also Read:

    Common Business Valuation Methods in India

    There are several approaches to valuing businesses in India, each suitable for different types of companies:

    1. Market Multiples Method : Valuation based on industry P/E or EBITDA multiples.
    2. Discounted Cash Flow (DCF) Method :Projected cash flows discounted to present value.
    3. Asset-Based Valuation : Total assets minus liabilities.
    4. Comparable Transactions : Benchmarking against similar business deals in India.

    Using financial modeling with normalized EPS complements these methods by making projections transparent and credible.

    3. Case Study: From Reported Rs.63 EPS to Normalised Rs.79 EPS

    The situation

    A mid-sized manufacturing business approached investors for growth capital. The reported financials showed:

    • Reported net income: 4.21 crore
    • Shares outstanding: 6,70,000
    • Reported EPS: 63
    • Founder’s assessment of true earning capacity: 82 per share
    • Investor challenge: Unwilling to value on the higher figure without proof

    The normalised EPS calculation

    The financial model identified four documented, non recurring cost items that had depressed reported earnings in that year:

    Earnings Adjustment ItemAmount (₹ lakh)
    Reported net income₹4.21 crore (base)
    + Pandemic margin impact (documented, non-recurring)+ ₹42 lakh
    + Operational efficiency gains (one-time restructuring)+ ₹28 lakh
    + Restructuring costs (non-recurring, with board approval)+ ₹42 lakh
    + Supply chain losses (temporary, COVID-linked)+ ₹19 lakh
    = Normalised net income₹5.52 crore
    ÷ Shares outstanding6,70,000
    = Normalised EPS₹82.39 (rounded to ₹79 for conservatism)
    Why ₹79 and not ₹82? The model deliberately rounded down to ₹79 slightly below the founder’s own estimate to signal conservatism and credibility. In investor negotiations, a number that is lower than what the management claims is always more trusted than a number that conveniently matches it.

    4. The Valuation Impact: A 36.4% Uplift Explained

    Using the standard 12× EBITDA multiple common in Indian SME and mid market business valuations, here is the direct financial impact of having a credible model:

     Without model (reported)With credible model (normalized)
    EBITDA used₹2.83 crore₹3.86 crore

    ( Normalized Net Income ₹ 5.52 crore * EBITDA Margin = 70% (typical for this business))
    Multiple applied12×12×
    Business valuation₹33.96 crore₹46.32 crore
    Valuation Increase from Financial Modeling—+₹12.36 crore (+36.40%)

    This 12.36 crore difference did not come from cooking the books. It came entirely from making visible what was already there non-recurring costs that had temporarily suppressed earnings, documented in detail so investors could verify them independently.

    3. Common Mistakes Founders Make in Financial Modeling

    Based on deal experience, these are the most frequent errors that undermine credibility with investors:

    Normalising without documentation

    Adjusting reported earnings upward without a paper trail board resolutions, auditor notes, or third party invoices confirming the non-recurring nature of costs is the fastest way to lose investor trust. Every adjustment needs a corresponding document.

    Presenting only the upside scenario

    A model with no downside case signals that the founder has not stress-tested their own assumptions. Sophisticated investors will immediately ask: what does this look like if revenue grows at 8% instead of 20% Have that answer ready.

    Hockey stick projections without operational justification

    Revenue projections that suddenly accelerate in Year 3 without a documented operational reason a new plant coming online, a signed distribution contract, a regulatory approval are dismissed immediately. Growth assumptions must be grounded in real operational milestones.

    In these contexts, a professionally built model does more than present numbers it demonstrates that the business is being run with institutional grade financial discipline.

    Conclusion: Credibility Is Built Before the Meeting

    The most important thing a founder can bring to an investor meeting is not the highest number it is the most defensible number. A normalised EPS of Rs.79 backed by documented evidence and transparent methodology will outperform an unsupported claim of Rs.100 every time.

    Financial modeling for business valuation is not an accounting exercise. It is a credibility building process that tells the story of your business’s true earning power in a language investors are trained to trust.

    Whether you are raising your first round, preparing for acquisition, or simply want to understand what your business is genuinely worth, the investment in a rigorous financial model pays for itself many times over.

    Benefits of Financial Modeling for Business Valuation

    1. What is the difference between reported EPS and normalised EPS?

    Reported EPS reflects actual earnings for a specific period, including one-time events, disruptions, and non-recurring costs. Normalised EPS adjusts for those items to show what the business would consistently earn under typical operating conditions. In the case study above, reported EPS was Rs.63 while normalised EPS was ₹79 a 25% difference that directly affects what multiple an investor is willing to apply.

    2. Should I always present a normalised EPS to investors?

    Only if every adjustment is supported by documented evidence that the cost or revenue impact is genuinely non-recurring. Investors will verify each item in due diligence. An unsupported upward adjustment damages credibility more than presenting the lower reported number.

    3. What is financial modeling in simple terms?

    Financial modeling is creating a structured representation of a company’s financial performance to help decision-making, plan scenarios, and communicate valuation transparently to investors.

    4. Why do investors prefer normalized EPS?

    Investors prefer normalized EPS because it removes one-time or non-recurring items, showing the company’s true earning potential, making valuations more reliable and defensible

    Author

    CA. Manish R. Mata Practising In India was associated with PwC,  At Adwani & Co LLP leads the International Accounting & Tax Support vertical, delivering structured execution assistance to US CPA firms and overseas businesses.

  • ITR Filing Below ₹2.5 Lakh: Is It Mandatory? Complete 2026 Guide

    ITR Filing Below ₹2.5 Lakh: Is It Mandatory? Complete 2026 Guide

    The Story Nobody Talks About

    Last month, a stressed client walked into our tax consulting office. His voice trembled as he explained his predicament: “Sir, mere income toh ₹2.5 lakh se bhi kam hai. Maine socha tha filing ki zaroorat nahi. Toh notice kyun aaya?” This conversation happens across India every single day.

    In conference rooms, small offices, and home meetings the misconception is so widespread that the Income Tax Department receives thousands of queries on this exact issue every filing season.

    The Truth Most People Miss Income tax return filing is not just about reporting your income. It is about your entire financial footprint. And if that footprint does not align with your reported income, the system will flag you regardless of how low your earnings actually are.

    Is ITR Filing Below ₹2.5 Lakh Mandatory in India?

    No, ITR filing is not mandatory if your income is below ₹2.5 lakh, but it becomes compulsory under specific conditions like high-value transactions, TDS deductions, or foreign travel.. Under the Income Tax Act, 1961, filing an ITR is not strictly mandatory if your gross total income falls below the basic exemption limit of ₹2.5 lakh (for individuals below 60 years). However, the law prescribes

    several conditions under which filing becomes compulsory regardless of income level. The Income Tax Department of India has also evolved from a simple income-based system to a comprehensive

    financial activity tracking system, using tools like the Annual Information Statement (AIS) and data feeds from banks, mutual funds, and customs authorities.

    You Must File ITR Even Below ₹2.5 Lakh If:

    • TDS or TCS has been deducted on your salary, bank interest, or any other income and you wish to claim a refund
    • High-value bank transactions exist in your account cash deposits exceeding ₹10 lakh, credit card spends above ₹1 lakh, or fund transfers that are significantly higher than your declared income
    • Foreign travel expenses above ₹2 lakh in a year have been incurred (as tracked through forex transactions and immigration records maintained by the Bureau of Immigration, India)
    • You own foreign assets or have received foreign income in any form
    • Electricity consumption exceeds ₹1 lakh in a year (per notified thresholds)
    • Business or professional income exists ITR filing is generally required irrespective of profit level
    • Deposits in current accounts exceed ₹50 lakh during the year
    • Deposits in savings accounts exceed ₹10 lakh in aggregate during the year

    Why Filing Voluntarily Still Makes Sense

    Even when not legally mandatory, filing your ITR provides significant practical benefits:

    • Maintains a clean, verifiable financial record
    • Prevents unnecessary notices or scrutiny from the department
    • Acts as proof of income for loans, home rentals, and visa applications
    • Allows you to carry forward capital losses for future tax offset
    • Required for claiming refunds on any TDS already deducted.

    Also Read:

    201https://www.adwaniandco.com/blog/form-26a-and-tds-default-relief-under-section-201

    ITR Filing Below ₹2.5 Lakh: Real Case Study of Tax Notice

    Let us break down the actual situation that prompted this article. A client with reported income of ₹2.3 lakh received a notice under Section 142(1) of the Income Tax Act, 1961, requiring him to explain transaction discrepancies. Three specific factors triggered the automated flag:

    Trigger 1: High Bank Account Activity

    The client’s bank account showed nearly ₹48 lakh in annual transactions regular deposits, large withdrawals, transfers to multiple beneficiaries, and occasional foreign remittances. The Income Tax Department receives bank transaction data through the Financial Intelligence Unit (FIU-IND) and cross-references it with your ITR filing via the AIS portal (incometax.gov.in). A ₹46 lakh gap between bank activity and declared income is an automatic red flag.

    Trigger 2: International Travel Records

    The client’s passport showed two international trips. Foreign exchange transactions are reported to the department by authorised dealers (banks and forex providers) under the Foreign Exchange Management Act (FEMA). Combined with low declared income, the department’s automated system raised questions about the source of travel funds. Note: Travel records in India are maintained by the Bureau of Immigration under the Ministry of Home Affairs not by any US agency.

    Trigger 3: Unmatched TDS Entries in AIS

    The client had ₹0.8 lakh in TDS entries (from bank interest, salary, and investments) sitting in the Annual Information Statement (AIS) with no corresponding ITR filed. The AIS consolidates all TDS/TCS data from employers, banks, and financial institutions. Unmatched TDS entries are the single biggest trigger for automated scrutiny notices in India today.

    The Numbers That Triggered the Notice

    Financial ActivityAmountStatus
    Reported Annual Income₹2.3 lakhDeclared in return
    Bank Account Deposits (Annual)₹48 lakhNot declared as income
    International Travel (2 trips)₹3.5 lakhNo documented source
    TDS Entries in AIS₹0.8 lakhUnmatched to ITR
    Investment Activity₹5.2 lakhNo source documentation
    Total Financial Activity₹60 lakh+Major discrepancy — ₹58L gap
    Key Lesson The Income Tax Department’s automated system does not ask “Is this person a criminal?” It asks “Does this financial story make sense?” In this case, a ₹58 lakh gap between activity and declared income made it clearly not make sense.

    Why ITR Filing Below ₹2.5 Lakh Gets Scrutinized by AIS & CASS

    India’s tax compliance infrastructure has undergone a silent revolution over the past decade. The department has moved from manual assessment to data-driven automated scrutiny. Here is how your financial footprint is tracked:

    1. Annual Information Statement (AIS)

    The AIS is available on the official Income Tax portal and consolidates data from 40+ sources including banks, mutual funds, registrars, stock exchanges, and more. It shows every financial transaction linked to your PAN. You can view your own AIS at any time and should do so before filing.

    2. Statement of Financial Transactions (SFT)

    Banks, mutual fund houses, registrars, and other specified entities are legally required under Section 285BA of the Income Tax Act to report high-value transactions to the department. This data flows directly into your AIS.

    3. Financial Intelligence Unit (FIU-IND)

    All cash transactions above ₹10 lakh and suspicious transactions are reported by banks to FIU-IND, which shares this data with the Income Tax Department for cross-verification.

    4. CBDT’s Automated Risk Profiling

    The Central Board of Direct Taxes (CBDT) uses a Computer Aided Scrutiny Selection (CASS) system that automatically identifies mismatches between your AIS data and your filed ITR (or absence of ITR). Cases with significant discrepancies are auto-selected for scrutiny or notice issuance without any human intervention.

    How to Do ITR Filing Below ₹2.5 Lakh (Step-by-Step Guide)

    Even if your income is below the taxable threshold, here is how to file correctly:

    • Step 1: Log in to the Income Tax e-filing portal using your PAN and Aadhaar-linked mobile OTP
    • Step 2: Download and review your AIS and TIS (Taxpayer Information Summary) under ‘Annual Information Statement’
    • Step 3: Select the appropriate ITR form ITR-1 (Sahaj) for salaried individuals with income up to ₹50 lakh; ITR-4 for small business/professional income
    • Step 4: Pre-fill your return using Form 26AS and AIS data, then verify all TDS entries match your records
    • Step 5: Declare all income sources salary, interest, capital gains, freelance income even if below the taxable limit
    • Step 6: Submit and e-verify using Aadhaar OTP, Net Banking, or Digital Signature Certificate (DSC). The filing deadline for AY 2025-26 is 31 July 2025 for non-audit cases
    Important Deadline The ITR filing deadline for Assessment Year 2025-26 (Financial Year 2024-25) is 31 July 2025 for individuals not subject to audit. A late filing fee of up to ₹5,000 applies under Section 234F if filed after the due date.

    Penalties for Ignoring ITR Filing Below ₹2.5 Lakh

    Failing to file when required or filing with incorrect information can result in the following consequences:

    • Late filing fee (Sec 234F): ₹1,000 if income is below ₹5 lakh; ₹5,000 for others
    • Interest on tax dues (Sec 234A): 1% per month on any outstanding tax liability
    • Notice under Section 142(1): Requires you to produce accounts, statements, and explanations for all transactions
    • Best Judgement Assessment (Sec 144): The Assessing Officer may assess your income based on available information if you fail to comply
    • Prosecution (Sec 276CC): Wilful failure to file can attract imprisonment of 3 months to 2 years in cases involving significant tax evasion

    Frequently Asked Questions

    1. Is it mandatory to file ITR if income is below ₹2.5 lakh in 2026?

    No, ITR filing is not always mandatory if your gross total income is below ₹2.5 lakh. However, it becomes legally required if you have TDS deductions you wish to claim as refund, high-value bank transactions (above ₹10 lakh deposits), foreign travel expenses above ₹2 lakh, foreign assets, or business/professional income. Voluntary filing is strongly advisable in all other cases.

    2. What happens if I do not file ITR despite having reportable financial activity?

    You may receive a notice under Section 142(1) or 148A of the Income Tax Act requiring you to explain your transactions. You also forfeit the right to claim any TDS refund, and risk penalties under Section 234F, interest under 234A, and in extreme cases, prosecution under Section 276CC. Additionally, obtaining loans, visas, or government tenders becomes difficult without ITR proof

    3. Can I receive an income tax notice even if my income is very low?

    Yes. The Income Tax Department’s automated system (CASS) does not consider income level alone. It compares your AIS data which includes all bank transactions, investments, foreign travel, and TDS entries against your filed return or the absence of one. Any significant mismatch automatically triggers a notice, regardless of your actual income.

    4. How much bank transaction is permissible without filing ITR?

    There is no officially ‘safe’ limit. However, cash deposits above ₹10 lakh in a savings account, or above ₹50 lakh in a current account in a financial year are mandatorily reported to the Income Tax Department by your bank. If your reported income cannot explain these transactions, filing an ITR with explanations is strongly advised.

    5. Why is ITR filing important even if I have zero tax liability?

    Filing ITR even with no tax payable helps you: (a) claim refunds on any TDS deducted, (b) maintain financial credibility for loan and visa applications, (c) establish a documented financial history, (d) carry forward capital losses to future years, and (e) avoid notices triggered by AIS data mismatches.

    Author

    Dr. Haresh Adwani,  | Adwani & Company Dr. Haresh Adwani is a PHD Holder In commerce with  20 years of experience in income tax compliance, NRI taxation, international financial advisory, and tax notice resolution.
    Services: ITR filing • Tax notice resolution • AIS reconciliation • NRI taxation • Financial footprint analysis • Penalty reduction & negotiation Schedule a consultation: Adwani & Company  Where compliance meets clarity.

  • Form 26A and TDS Default: Relief Under Section 201 and Its Limits

    Form 26A and TDS Default: Relief Under Section 201 and Its Limits

    A client called me last year with a familiar problem. His business had made professional payments across two financial years without deducting TDS. Nobody had caught it at the time. The issue only surfaced during his tax audit and by then, interest had already been building for months.

    His first question was simple: “Can Form 26A fix this?”

    The honest answer is: partly. Form 26A is a genuine and meaningful relief mechanism. But it does not resolve everything, and businesses that assume it does often find themselves with an unexpected interest burden.

    Form 26A helps a payer avoid being treated as an assesse in default under Section 201 if the payee has filed their return, included the income, and paid taxes. However, it does not eliminate interest under Section 201(1A) or guarantee expense allowability under Section 40(a)(ia).

    Here is what Form 26A actually does and where it stops.

    What Is Form 26A and What Does It Do in a TDS Default Situation?

    When a payer fails to deduct TDS on a payment, the Income Tax Department typically treats that payer as an assessee-in-default under Section 201(1). This is not a minor label. It carries real consequences: disallowance of the expense under Section 40(a)(ia), interest liability under Section 201(1A), and a formal default on your record.

    The proviso to Section 201(1) offers a conditional path out. A payer will not be treated as an assessee-in-default despite failing to deduct TDS if all three of the following conditions are met on the payee’s side:

    1. The payee (a resident) has filed their return of income under Section 139.
    2. The payee has included this specific income in that return.
    3. The payee has paid the tax due on this income.

    If all three are satisfied, a Chartered Accountant certifies these facts in Form 26A. Once submitted, the payer escapes the assessee-in-default classification under Section 201(1).

    That is meaningful relief. But many businesses stop reading here and that is precisely where the problem starts.

    In a typical Form 26A TDS default case, understanding these limitations is critical to avoid further tax exposure.

    Also read:

    https://www.adwaniandco.com/blog/paid-your-taxes-honestly-still-got-an-income-tax-notice-2026-guide

    Limitations of Form 26A in TDS Default Cases

    Understanding the limits of Form 26A is just as important as knowing what it provides. Here are the four key boundaries businesses and their advisors must be aware of.

    Limit 1 Relief Is Not Automatic

    Form 26A must be formally obtained and submitted. Simply knowing you may be eligible does not protect you. The default remains on record until the form is actually furnished through the proper procedure. Acting on it early matters.

    Limit 2 Interest Under Section 201(1A) Still Applies

    New subsection to be inserted within the existing “Interest Liability Under Section 201(1A)” section.

    What the Interest Actually Costs

    Understanding that interest applies is one thing. Knowing the rate is what makes the risk real.

    Section 201(1A) prescribes two distinct rates depending on the nature of the default:

    • Failure to deduct TDS at all: Interest at 1% per month (or part of a month) on the amount of tax that should have been deducted, running from the date TDS was required to be deducted to the date the payee files their return of income.
    • TDS deducted but not remitted to the government: Interest at 1.5% per month (or part of a month) on the amount deducted, running from the date of deduction to the date of actual payment.

    Both rates may appear modest in isolation, but they compound against time and against the full tax amount not just the delayed portion. In a case where TDS was required in, say, April of a financial year and the payee only files their return fourteen months later in June of the following year, the interest calculation covers that entire period. At 1% per month, that is already a 14% charge on the TDS amount, before any penalties are considered.

    The interest under Section 201(1A) is treated by law as a compensatory charge not a penalty  for the period during which the government was denied timely access to the tax. This characterisation was affirmed by the Supreme Court in Hindustan Coca-Cola Beverages Pvt. Ltd. v. CIT (2007) 293 ITR 226 (SC), where the Court made clear that even where the payee has paid the underlying tax and the payer is not treated as an assessee-in-default, the compensatory interest still runs its course. It does not disappear simply because the substantive default has been regularised through Form 26A.

    For businesses reviewing their books after a TDS audit finding, this calculation is usually the first number their CA should work out because it tells you exactly what is at stake before you even begin the Form 26A process.

    Limit 3 Disallowance Under Section 40(a)(ia) Is a Separate Question

    Form 26A only addresses Section 201(1). Whether your expense is actually allowed as a deduction is governed by Section 40(a)(ia), which has its own conditions and its own logic.

    Here is how Section 40(a)(ia) operates. When a payer fails to deduct TDS on payments such as professional fees, contract payments, rent, commission, interest, or royalties made to a resident, the law restricts the deduction of that expense in the year of default. The current restriction  reduced from 100% to 30% by the Finance Act 2014, effective from Assessment Year 2015-16  means that 30% of the gross payment can be disallowed and added back to taxable income. For a business making substantial payments without TDS, this can translate into a meaningful increase in tax liability, not just a compliance note.

    The critical link between Form 26A and Section 40(a)(ia) lies in the second proviso to that section, read with the first proviso to Section 201(1). If Form 26A conditions are satisfied payee has filed a return, included the income, and paid taxes  then the payer is deemed to have deducted and paid the TDS on the date the payee filed their return of income. As a result, the disallowance under Section 40(a)(ia) does not apply for that year.

    But this only works if Form 26A is filed. If the form is not furnished  even where the payee has genuinely paid taxes  the payer cannot claim this relief automatically. The deemed-payment fiction under the second proviso is triggered only by the act of furnishing the form through the prescribed process.

    Two situations where the expense remains at risk despite a payee having paid taxes:

    • Form 26A is not filed before the assessment is concluded. Courts and the CBDT have consistently taken the position that Form 26A must be furnished before the assessment proceedings are finalised. Filing it after an assessment order is passed may not provide retrospective protection.
    • The payee is a non-resident. Section 40(a)(ia) covers payments to residents. For payments to non-residents, the relevant provision is Section 40(a)(i), and neither Form 26A nor the proviso to Section 201(1) applies in the same way. (This is addressed separately below under the non-resident limitation.)

    The practical takeaway: Form 26A and expense allowability under Section 40(a)(ia) are related but distinct outcomes. Getting the form in place, accurately and on time, is what connects the payee’s compliance to the payer’s tax relief. Without it, the payee having paid taxes is a fact  but one that the payer cannot use in their own assessment.

    Limit 4 The CA Certification Must Be Rigorous

    The Chartered Accountant issuing Form 26A must independently verify all three payee conditions: that the return was filed, that this income was included, and that tax was paid. If this verification is done carelessly or without proper documentary checks, the certification itself can be challenged creating fresh risk rather than resolving the existing one.

    Limit 5 Form 26A Does Not Apply to Non-Resident Payees

    The proviso to Section 201(1) which enables Form 26A relief applies only where the payee is a resident of India. The statute is explicit on this point. If a business makes a payment to a non-resident whether a foreign company, NRI, or overseas service provider without deducting TDS under the applicable section (most commonly Section 195), Form 26A cannot be used to seek relief.

    For non resident payments, the TDS obligation has a different character altogether. The government’s collection mechanism for non-resident income depends substantially on withholding at source because once funds leave India, enforcement becomes significantly more complex. Courts have reinforced this view. In matters involving payments to non-residents without deduction under Section 195, tribunals have consistently declined to extend the Form 26A protection, even where the non-resident has filed a return and paid taxes in India.

    Businesses operating in cross-border vendor relationships, making royalty or technical service payments overseas, or buying immovable property from NRIs need to be aware that this relief simply does not extend to their situation. The exposure under Section 201(1) in a non-resident default remains unresolved by Form 26A, and the path to remediation if one exists lies in different provisions, including DTAA applicability, lower deduction certificates under Section 197, or representations to the Assessing Officer under Section 195(2) and (3).

    If your business makes both resident and non-resident payments, a compliance review should treat these as two distinct categories with different risk profiles and different available remedies.

    Form 26A and TDS Default: Relief Under Section 201
    Form 26A and TDS Default: Relief Under Section 201

    Interest Liability Under Section 201(1A) in TDS Default Cases

    Many businesses assume that once Form 26A is obtained, the TDS default is fully resolved. That assumption is incorrect, and the consequences of getting this wrong can be significant.

    Interest under Section 201(1A) is not a penalty. It is treated by law as a compensatory charge for the period during which the government was deprived of timely tax collection. The interest runs from the date on which TDS was required to be deducted to the date on which the payee actually files their return of income. This is the case even if the payee has correctly disclosed the income and paid all taxes.

    In practice, there is almost always a time gap. A payment may be made during the financial year, but the payee’s return is typically filed months later sometimes beyond the due date. During this entire period, interest accrues without interruption.

    The real problem arises because TDS defaults are rarely identified immediately. In most cases including my client’s situation the issue surfaces during a statutory audit, tax audit, or income tax scrutiny. By that point, a substantial period has already passed. What started as a minor compliance lapse has become meaningful financial exposure, purely because of time.

    The practical advice here is straightforward: act early. If you suspect a TDS default may exist in your books, get a structured compliance review done before it surfaces in a scrutiny notice. The earlier the detection, the lower the interest exposure.

    Judicial and CBDT Context: Why the Law Landed Here:

    The Form 26A mechanism did not emerge from a vacuum. It was the legislature’s codification of a principle that courts had already been applying — that once the government has received its tax from the payee, the payer should not be subjected to double jeopardy merely for the failure to withhold it.

    The Supreme Court in Hindustan Coca-Cola Beverages Pvt. Ltd. v. CIT (2007) 293 ITR 226 (SC) laid the conceptual groundwork. The Court held that if the payee has paid tax on the income received, treating the payer as an assessee-in-default for failure to deduct results in the government recovering the same tax twice. CBDT Circular No. 275/201/95-IT(B) dated 29th January 1997 had already taken a similar position administratively. The Finance Act 2012 formalised this logic by inserting the first proviso to Section 201(1) and, through Notification No. 37/2012, prescribing Rule 31ACB and Form 26A.

    What the Supreme Court also made clear — and what CBDT Circular No. 11/2017 subsequently addressed — is that interest under Section 201(1A) occupies a different space. The Court characterised it as compensatory rather than penal: it is the price the payer pays for having denied the government access to the withheld amount during the intervening period. This distinction matters because it means the interest survives even the most complete Form 26A filing. Courts do not treat the two — assessee-in-default status and interest liability — as a single outcome that Form 26A resolves together.

    CBDT Circular No. 11/2017 also introduced a narrow relief for interest waiver in specific cases of TDS default under Section 201(1A)(i) for example, where a deductor acted on a jurisdictional High Court order that was subsequently reversed, or in cases involving non-residents where the DTAA was misapplied in good faith. These waivers require an application to the concerned CCIT or DGIT and are granted in exceptional circumstances, not as a matter of routine. Businesses in genuinely ambiguous positions may want to explore whether their facts qualify under these guidelines —but should not assume the waiver as a given.

    The overall judicial trajectory is consistent: courts protect bona fide payers from double taxation but do not relieve them of the time-value cost of delayed withholding. Form 26A gives you the former. It cannot give you the latter.

    How Form 26A Is Filed: The TRACES Process in Practice

    The blog so far has focused on what Form 26A does and where it stops. But a business that has identified a TDS default and wants to act on it has one immediate practical question: how does this actually get done?

    Form 26A is filed electronically through the TRACES portal (tdscpc.gov.in), the government’s TDS reconciliation and correction platform. The process is dual-step, involving both the deductor and the Chartered Accountant separately.

    Step 1 : The Deductor Initiates the Request

    The deductor logs into TRACES and raises a request for Form 26A based on the PAN of the payee for whom relief is being sought. The system auto-populates transactions from the deductor’s filed TDS returns where non-deduction or short-deduction is reflected. The deductor identifies the specific transactions, generates the annexure in the prescribed format, and submits it digitally either using a Digital Signature Certificate (DSC) or through Electronic Verification Code (EVC). The form then moves to a status of “Sent to E-Filing.”

    Step 2 : The Chartered Accountant Certifies

    The assigned CA receives the request in their Income Tax e-Filing portal login under Worklist → For Your Action. Before certifying, the CA must independently verify the three conditions that the law requires: that the payee has filed their return under Section 139, that the specific income paid by the deductor is included in that return, and that the tax due on the declared income has been paid. This verification must be based on actual examination of the payee’s return, acknowledgement, Form 26AS, and tax payment records — not merely on representations made by the payee or the deductor.

    The CA fills in the payee’s return filing details — date of filing, acknowledgement number, ITR form type, declared income, tax payable, and tax paid — and submits the certificate in the prescribed Annexure A format, using their own DSC.

    Step 3 : The Deductor Finalises Submission

    Once the CA submits, the deductor logs back into the e-Filing portal and submits Form 26A using DSC or EVC. TRACES then processes the form and recalculates the TDS default position. If accepted, the deductor’s status changes from assessee-in-default to relieved, and TRACES recomputes the interest under Section 201(1A) for the applicable period.

    What the CA Must Actually Verify

    Rule 31ACB of the Income Tax Rules, 1962, which prescribes Form 26A, requires that the CA examine the relevant accounts, documents, and records of the payee — not merely accept verbal confirmation. In practice, this means obtaining and retaining copies of:

    • The payee’s ITR acknowledgement for the relevant assessment year
    • The payee’s tax computation showing the disputed income was included
    • Evidence of tax payment (Challan / Form 26AS / AIS)
    • The deductor’s TDS return showing the transaction in question

    A certification that is done without this documentation is not merely careless it is professionally exposed, and could be challenged during assessment, converting a resolved matter into an active dispute.

    Conclusion .

    Form 26A is useful in a TDS default scenario, but it is not a complete solution.

    Form 26A is a useful and legally sound mechanism. When used correctly, with proper CA verification, it provides genuine protection against the assessee-in-default label under Section 201(1).

    But it is not a complete fix. Interest under Section 201(1A) still runs. Expense disallowance under Section 40(a)(ia) is a separate question. And the certification itself carries responsibility it must be done with proper documentary verification, not as a formality.

    If your business has missed TDS deductions or if you are not entirely sure whether you have a structured compliance review before scrutiny is always the better path. Catching the issue early limits the damage; discovering it during a notice limits your options.

    Frequently Asked Questions

    1. What is Form 26A in TDS?

    Form 26A is a certificate issued by a Chartered Accountant confirming that the payee has included the relevant income in their return of income and paid the applicable taxes. When furnished properly, it allows the payer to claim relief from being treated as an assessee-in-default under Section 201(1) of the Income Tax Act. (Learn more about TDS defaults and compliance https://www.adwaniandco.com/services

    2. Does Form 26A completely remove TDS liability?

    No. Form 26A only removes the assessee-in-default classification under Section 201(1), subject to all three payee conditions being met. Interest liability under Section 201(1A) still applies, and the question of expense disallowance under Section 40(a)(ia) is an entirely separate matter.

    3. Is interest payable even after filing Form 26A?

    Yes. Interest under Section 201(1A) continues to apply and is calculated from the date TDS was originally required to be deducted to the date the payee files their return of income. Form 26A does not eliminate this interest.

    4. When should Form 26A be filed?

    Form 26A should be filed once it is confirmed that the payee has filed their return of income, included the relevant income in that return, and paid the tax due. The sooner this is done after a default is identified, the better as delay increases interest exposure.

    5. What happens if Form 26A is not filed?

    Without Form 26A, the payer remains classified as an assessee-in-default under Section 201(1). This can result in a tax demand, interest under Section 201(1A), and potential disallowance of the expense under Section 40(a)(ia). The default also stays on formal record, which can complicate future assessments.