Section 194T (Effective 1 April 2025): Guidance for Partnership Firms Before the Last Advance Tax Installment

 By CA Surekha S Ahuja

The introduction of Section 194T by the Finance (No. 2) Act, 2024, effective 1 April 2025, marks a fundamental shift in the tax compliance framework governing partnership firms and LLPs.

For decades, payments made by firms to partners—whether in the form of interest on capital or remuneration to working partners—were taxable in the hands of partners under Section 28(v) but escaped the TDS regime entirely.

The legislature has now addressed this gap by introducing mandatory tax deduction at source on such payments.

This development has particular significance as the last installment of advance tax approaches, because many firms finalize remuneration and interest adjustments near year-end. Without careful planning, such adjustments may trigger TDS defaults, interest liability, and potential disallowances.

Accordingly, firms must now evaluate partner payments with a structured legal approach that integrates Section 194T with Sections 40(b), 44AD, 28(v), and the broader TDS framework.

This guidance note provides a comprehensive and practical interpretation of the provision, with analytical reasoning, scenario analysis, and compliance insights designed to prevent any default risk.

Statutory Framework of Section 194T

Section 194T requires a partnership firm or LLP to deduct tax at source when making certain payments to its partners.

The payments covered include:

• salary

• remuneration

• commission

• bonus

• interest on capital or loan

• any similar payment in consideration of services rendered by a partner.

These categories broadly mirror the terminology used in Section 40(b) which governs deductibility of partner remuneration and interest in computing firm income.

Rate and Threshold

Particulars	Requirement
Specified payments to partners	TDS @ 10%
Aggregate payment up to ₹20,000 per partner per financial year	No TDS required
No PAN furnished	20% TDS (Section 206AA)

Time of Deduction

Tax must be deducted at the earlier of:

• credit of the amount to the partner’s account (including capital account), or

• actual payment.

Therefore, mere credit entries—even without cash payment—trigger the TDS obligation.

Reasoning Behind the Provision

The legislative objective behind Section 194T is to integrate partner remuneration and interest into the information reporting and tax collection framework.

Historically:

• firms could credit partner remuneration at year-end

• the tax department had limited visibility over such payments until returns were filed

• collection of tax depended entirely on partner compliance.

By introducing TDS, the law now ensures:

Earlier position	Position after Section 194T
No withholding mechanism	Mandatory withholding
Limited reporting	Full TDS reporting through Form 26Q
Tax collected at return stage	Tax collected during the year

Thus Section 194T functions primarily as a tax collection and reporting mechanism, not as a new tax levy.

Core Legal Principle — TDS Trigger Is the Payment Itself

The most important interpretational principle of Section 194T is that the obligation to deduct tax depends on the nature of payment, not on the method of income computation of the firm.

Consequently, the section applies irrespective of whether:

Situation	Applicability
The firm opts for presumptive taxation under Section 44AD	Yes
The firm maintains full books of account	Irrelevant
The payment is allowable under Section 40(b)	Irrelevant
The partner claims presumptive taxation	Irrelevant

The character of payment alone determines applicability.

Interaction with Section 44AD (Presumptive Taxation)

A common misunderstanding arises where firms adopting Section 44AD believe that because profits are computed presumptively and partner remuneration is not separately deducted, TDS should not apply.

Such interpretation is legally incorrect.

Section 44AD merely determines how the firm computes its taxable income. It does not alter the existence or character of payments made to partners.

Even in a presumptive regime:

• remuneration remains remuneration

• interest remains interest.

Thus the moment such payment is credited or paid, Section 194T becomes operational.

The absence of books of account or reliance on presumptive computation does not negate the factual existence of the payment.

Relationship with Section 40(b) – Allowability vs TDS

Section 40(b) governs the deductibility of remuneration and interest in the hands of the firm.

However, Section 194T operates independently of deductibility.

Illustration

Particulars	Amount
Interest paid to partner	₹1,50,000
Maximum allowable under Section 40(b)	₹1,20,000
Disallowed portion	₹30,000

Even though ₹30,000 is disallowed in the firm’s computation, TDS must still be deducted on the entire ₹1,50,000.

The disallowance affects tax computation, not TDS obligation.

Payments Covered and Not Covered

Understanding the precise scope of Section 194T is essential.

Nature of Payment	TDS Applicability	Reason
Salary or remuneration to partner	Yes	Explicitly covered
Interest on partner capital	Yes	Explicitly covered
Commission to partner	Yes	Explicitly covered
Bonus to partner	Yes	Explicitly covered
Share of profit	No	Exempt under Section 10(2A)
Return of capital	No	Capital transaction
Partner drawings	No	Withdrawal of capital/profit

Thus pure profit share distributions remain outside the TDS regime.

Important Practical Scenarios

Pure Capital Withdrawals

Where partners merely withdraw amounts from their capital accounts without any remuneration or interest credit, such withdrawals represent distribution of profits or capital.

In such cases Section 194T should not apply, provided there is no underlying remuneration or interest entry.

However, substance prevails over form. If remuneration is credited and then withdrawn, it remains remuneration for TDS purposes.

Composite Partner Accounts

Many firms maintain a single partner current account containing:

• profit share

• remuneration

• interest

• drawings.

In such cases the firm must segregate each component.

Component	TDS requirement
Profit share	No
Interest	Yes
Remuneration	Yes

Failure to maintain such segregation may expose the firm to disputes.

Remuneration Exceeding Partnership Deed Limits

Even if remuneration exceeds limits prescribed in the partnership deed or under Section 40(b), the payment still retains the character of remuneration.

Therefore TDS must be deducted on the full amount actually paid.

Partner Claiming Presumptive Taxation

If the partner opts for Section 44AD or 44ADA in his own return, it does not affect the firm’s TDS obligation.

The partner may claim credit or refund of TDS while filing the return.

Availability of Form 15G / 15H and Form 13

Many taxpayers ask whether TDS under Section 194T can be avoided through declarations or lower deduction certificates.

The position requires careful understanding.

Provision	Applicability under 194T
Form 15G / Form 15H	Not applicable
Lower or Nil TDS certificate (Form 13)	Generally not available in practice
Reason	Section 197 does not presently list 194T

Thus once the threshold is crossed, deduction of tax becomes mandatory.

Consequences of Non-Compliance

Failure to deduct or deposit TDS may trigger multiple consequences.

Section	Consequence
Section 201(1)	Assessee deemed in default
Section 201(1A)	Interest liability
Section 221	Penalty
Section 271C	Penalty equal to TDS
Section 234E	Late filing fee for TDS returns
Section 40(a)(ia)	Possible disallowance of expenditure

Thus a single lapse can lead to cascading financial exposure.

Strategic Planning to Reduce TDS Exposure

While Section 194T cannot be ignored, certain legitimate structuring approaches may reduce unnecessary TDS outflow.

Profit Share Model

Since profit share is exempt in the hands of partners, firms may rely more on profit distribution instead of fixed remuneration, particularly in small firms.

Controlled Remuneration

Firms may limit remuneration to remain within the ₹20,000 annual threshold where commercially feasible.

Flexible Deed Provisions

Partnership deeds providing mandatory fixed remuneration may trigger unavoidable TDS obligations. Flexible clauses allow better tax planning.

Treatment in the Hands of the Partner

Although TDS is deducted by the firm, the final tax liability rests with the partner.

Partner situation	Result
Income below basic exemption	Full refund possible
Presumptive taxation claimed	TDS adjusted against liability
High deductions available	Refund likely

Therefore, in many cases TDS becomes merely a temporary cash flow adjustment rather than a permanent tax burden.

Advance Tax Planning Implications

With Section 194T in force, firms and partners must re-evaluate advance tax obligations.

Key considerations include:

• monitoring partner payments during the year

• adjusting advance tax based on TDS deducted

• avoiding year-end remuneration credits without TDS deduction.

Failure to do so may trigger interest under Sections 234B and 234C.

Compliance Approach for Firms

The safest compliance strategy involves:

Step	Action
Review partnership deed	Identify remuneration clauses
Track partner payments	Monitor aggregate amount
Deduct TDS when threshold crossed	Apply correct rate
Deposit TDS within due date	Avoid interest liability
File TDS returns	Ensure Form 26Q reporting
Issue Form 16A	Enable partner credit

Professional Conclusion

Section 194T transforms partner remuneration and interest from internal accounting adjustments into regulated TDS transactions.

From FY 2025-26 onward, partnership firms and LLPs must treat such payments with the same level of compliance discipline applicable to other TDS provisions.

The safest professional approach is:

• clear distinction between profit share and remuneration

• continuous monitoring of partner accounts

• early advance tax planning.

In essence, Section 194T does not increase the tax burden, but it significantly increases the compliance responsibility of partnership firms.

When properly understood and planned, the provision can be managed smoothly without creating any default, interest exposure, or litigation risk.

Beyond Buy–Borrow–Die: Why the World’s Oldest Wealth Wisdom Now Points Back to India

By CA Surekha S Ahuja 

Wealth strategies come and go with financial fashion. But the principles that sustain families, nations, and civilizations rarely change.”

In recent years, global finance has popularised a phrase called Buy–Borrow–Die (BBD)—a concept often associated with ultra-wealthy investors who accumulate appreciating assets, borrow against them rather than selling, and eventually pass those assets across generations.

To many observers, the strategy appears to be a modern innovation of sophisticated financial planning.

But the philosophy behind it is far older.

For centuries, merchant families, trading communities, and business houses across civilizations quietly followed the same principle:

Build assets patiently. Preserve them carefully. Allow them to grow across generations.

Long before modern finance gave it a name, this discipline formed the backbone of enduring wealth.

Today, as the world enters a new phase of uncertainty, that old wisdom is becoming relevant again.

And increasingly, it is pointing toward an important conclusion for Indian families worldwide.

A world entering a new phase of uncertainty

The global economic environment is changing in profound ways.

Geopolitical tensions are rising. Trade relationships are being reshaped. Supply chains are being redesigned as nations focus on economic resilience and strategic independence.

In such an environment, wealth planning cannot depend only on chasing global financial centres or short-term market opportunities.

The real question becomes deeper:

Where should long-term wealth grow so that it remains resilient across generations?

For millions of Indian families living across borders, this question is becoming increasingly important.

The powerful bridge of the global Indian family

India today represents one of the most remarkable economic bridges in the world.

Millions of Indians live and work abroad—in North America, Europe, the Middle East, Southeast Asia, and Australia—while their emotional and financial ties remain strongly connected to India.

This relationship is visible in a remarkable economic reality.

India consistently receives over 100 billion dollars annually in remittances, the largest such inflow in the world.

These flows represent the success of Indian professionals and entrepreneurs across continents.

But the deeper question is not how much money arrives.

The more important question is:

What do families build with that income?

The difference between comfort and security

When income rises, families naturally focus on improving their quality of life—better homes, education, and financial comfort.

There is nothing wrong with enjoying prosperity.

However, history reveals a critical distinction.

Income spent creates comfort.

Income converted into productive assets creates security.

Businesses expand. Investments compound. Income-generating assets continue producing value long after the original income has been earned.

Over time, these assets become the true foundation of family stability.

What Buy–Borrow–Die really teaches

Much of the global debate around Buy–Borrow–Die focuses on its use by extremely wealthy individuals to defer taxes.

But focusing only on that aspect misses the deeper insight.

The core principle behind the concept is simple:

Wealth that remains invested in productive assets continues to compound.

Frequent selling interrupts that compounding.

Long-term ownership strengthens it.

In essence, the real lesson behind BBD is not borrowing or financial engineering.

It is something much simpler:

Patient ownership of productive assets across generations.

This philosophy has sustained successful business families for centuries.

Why India matters more than ever

In a world of uncertainty, economies with certain structural strengths become especially important for long-term wealth creation.

India possesses several of these advantages.

A vast domestic market ensures sustained demand.
A young population supports long-term growth.
Infrastructure development is accelerating productivity.
Entrepreneurial energy continues to generate innovation and enterprise.

Together, these forces create something powerful:

A long runway for economic growth.

For Indian families earning globally, this creates a unique opportunity.

Earn across the world—but allow wealth to grow in a developing and resilient economy.

When personal wealth strengthens a nation

Capital invested productively within a growing economy does more than build individual fortunes.

Investment in businesses creates employment.
Investment in enterprises fuels innovation.
Investment in financial markets deepens economic strength.
Investment in infrastructure improves productivity.

In such an environment, personal prosperity and national development move in the same direction.

Few forces are more powerful for long-term economic progress.

A timeless wealth framework

Instead of focusing only on complex financial strategies, families may benefit from returning to a simpler and more enduring philosophy:

Earn. Build. Preserve. Pass On.

Earn through skill, enterprise, and global opportunity.

Build productive assets.

Preserve capital with patience and discipline.

Pass on not only wealth but responsibility to the next generation.

This approach combines modern financial thinking with timeless wisdom.

The cultural insight behind it

Indian civilisation has long viewed wealth within a broader ethical framework.

The classical concept of Artha (wealth) was always linked to Dharma (responsibility).

Wealth was meant to be created ethically, preserved wisely, and transferred across generations in a way that strengthened both family and society.

When wealth follows this path, it becomes more than financial success.

It becomes a force of stability and progress.

The question every family must ask

In uncertain times, the most important financial question is not:

“How much did we earn this year?”

The deeper question is:

“What lasting foundation did we build with what we earned?”

Income spent disappears.

Income invested can support generations.

Final reflection

The philosophy behind Buy–Borrow–Die may have gained attention in modern financial debates, but its essence is far older and far simpler.

It reminds us that patient ownership of productive assets is the foundation of enduring prosperity.

For Indian families across the world—whether parents remain in India or children build careers abroad—the opportunity today is unique.

Earn across the world.
Build patiently.
Preserve wisely.
Let wealth grow where it strengthens both family and nation.

Because the greatest legacy is not wealth that merely survives generations—

it is wealth that rises with the nation it belongs to.

Remote Work Across Borders: Work from India, Work from Abroad, NRI Visits, Overseas Portals, NRE Salary Credits and Taxability

 By CA Surekha S Ahuja

The Global Workforce Has Changed — But Tax Rules Still Follow Physical Presence

The structure of employment has transformed dramatically. Technology now allows professionals to work from almost anywhere in the world while remaining employed by companies located in another country.

A software engineer employed by a US company may visit India to meet parents but continue working remotely.
An Indian professional may travel abroad to stay with children and continue working online for the Indian employer.
Many employees now log into foreign servers, cloud platforms or corporate portals while physically sitting in another jurisdiction.

These arrangements raise a critical tax question.

If salary is paid in one country but the work is performed in another, where should the income be taxed?

This issue is governed primarily by three provisions of the Income-tax Act, 1961:

• Section 5 – Scope of Total Income
• Section 6 – Residential Status
• Section 9(1)(ii) – Income Deemed to Accrue in India

Although the legal framework is well established, disputes frequently arise because employees and employers do not maintain proper documentation showing where services were actually performed.

This guidance note explains the governing legal principles and addresses the most common practical situations arising in modern cross-border employment.

Residential Status Is the Foundation of Cross-Border Taxation

Every analysis begins with determining the residential status of the individual under Section 6.

Residential status defines the scope of income that India can tax.

Non-Resident (NR)

A non-resident is taxable in India only on:

• income received in India
• income accruing or arising in India

Foreign income earned and received outside India generally remains outside Indian taxation.

Resident and Ordinarily Resident (ROR)

A resident ordinarily resident is taxable in India on global income, regardless of where it is earned or received.

Resident but Not Ordinarily Resident (RNOR)

RNOR status applies typically to returning NRIs or expatriates who have recently relocated to India.

During RNOR status:

• foreign income is generally not taxable in India
• except where income arises from business controlled from India or services performed in India.

Therefore residential status determines the scope of taxation, while the place of service determines where salary accrues.

Where Does Salary Accrue — The Core Legal Principle

Indian courts have consistently held that salary accrues at the place where services are performed.

The Bombay High Court in CIT v Avtar Singh Wadhwan (115 Taxman 536) clarified that salary becomes payable only after services are rendered. Therefore the place of service determines the place of accrual.

This leads to a simple but critical rule.

Work done outside India → salary accrues outside India
Work done in India → salary accrues in India

The following factors do not determine accrual:

• location of employer
• country where payroll is processed
• place where employment contract was signed
• location of bank account receiving salary.

The physical location of the employee while performing services remains decisive.

Salary Earned Abroad but Remitted to India

Another frequent misconception relates to remittance of foreign salary into India.

Many employees believe that once foreign salary is transferred to India or deposited in an NRE account, it becomes taxable in India.

Indian law does not support this view.

Explanation 2 to Section 5 clarifies that income already received outside India cannot again be treated as income received in India merely because it is subsequently remitted.

The CBDT in Circular No. 13 of 2017 clarified this principle while dealing with salary of non-resident seafarers credited to NRE accounts.

Tribunal decisions including Kaushal Ganpatbhai Patel v ITO and Arumugam Rajasekar v ITO reaffirm that such remittances represent application of income already earned abroad.

Accordingly, if a Non-Resident earns salary abroad and later transfers money to India, the remittance itself does not create Indian tax liability.

Remote Work from India for a Foreign Employer

The tax position changes when the employee physically performs employment duties while located in India.

Under Section 9(1)(ii), salary is deemed to accrue in India when services are rendered in India.

Therefore if an employee stays in India and continues working for a foreign employer, the portion of salary attributable to those services may become taxable in India.

This remains true even if:

• the employer is located outside India
• payroll is processed abroad
• salary is credited to a foreign bank account
• the employment contract is governed by foreign law.

The place of service overrides all other factors.

Does Working Only Through Overseas Portals Change the Position

In modern workplaces employees often access company systems through VPN networks, cloud platforms or overseas portals.

Some employees assume that if the digital infrastructure is located abroad, the services are considered to be performed outside India.

Indian tax law does not adopt that interpretation.

The relevant factor is where the employee is physically located while performing the work.

If the employee sits in India and logs into an overseas portal, the services are still regarded as rendered in India.

The location of:

• servers
• databases
• corporate portals
• cloud infrastructure

does not determine the place of accrual of salary.

Scenario Analysis – Real Life Situations Frequently Seen

NRI visiting India while continuing work

An NRI may visit India to meet parents while continuing employment duties online.

If the individual remains non-resident, taxation depends on whether services are performed during the stay.

If work is performed in India, salary attributable to those services may accrue in India.

If the visit represents pure leave and no services are rendered, salary continues to accrue outside India.

Documentation confirming leave status becomes important.

NRI visiting India but working only on employer portal

Accessing the employer’s overseas systems while physically in India does not change the tax principle.

The services are still regarded as performed in India because the employee is physically present in India while working.

NRI visiting India but receiving salary abroad

Receiving salary in a foreign bank account does not override Section 9(1)(ii).

If services are performed in India, the salary relating to those services may still accrue in India.

Resident Indian visiting children abroad and working remotely

If an Indian resident travels abroad and continues working remotely for the Indian employer, the salary remains taxable in India because residents are taxed on global income.

However the host country may also claim taxation rights if services are performed there.

In such cases DTAA relief and foreign tax credit mechanisms apply.

Resident Indian working from employer office abroad

If the employee works from the employer’s office abroad, the services are clearly rendered outside India.

But if the individual remains resident in India, the income continues to be taxable in India subject to foreign tax credit.

Employee working partly in India and partly abroad

Where duties are performed across multiple jurisdictions, salary may need to be apportioned based on working days in each country.

Such situations are common in multinational employment structures.

Returning NRI qualifying as RNOR

A returning professional may qualify as RNOR for a transitional period.

During RNOR status, foreign income generally remains outside Indian taxation.

However salary relating to services performed in India becomes taxable.

Thus remote work from India may trigger Indian tax liability.

Managing High Value NRE Deposits

Large deposits in NRE accounts frequently trigger queries under AIS or Statement of Financial Transactions reporting.

Although interest on NRE deposits remains exempt under Section 10(4)(ii), tax authorities may ask about the source of funds.

Maintaining documentation linking NRE deposits to overseas salary receipts helps resolve such queries quickly.

Employer Compliance Responsibilities

Employers managing globally mobile employees must establish clear compliance procedures.

Employment contracts should clearly identify the primary location where services are expected to be performed.

Where remote work from another jurisdiction is permitted, employers should issue written approvals specifying duration and nature of the arrangement.

Payroll records should maintain country wise work location details for each pay period.

Companies should also evaluate potential permanent establishment risks or payroll withholding obligations in foreign jurisdictions.

Annual employee declarations confirming travel and tax residency are also advisable.

Employee Compliance Responsibilities

Employees must maintain a clear documentation trail supporting their tax position.

Important records include:

• passport and travel history
• employment contract and remote work approvals
• logs showing the location where services were performed
• bank records showing first receipt of salary abroad
• remittance records when funds are transferred to India.

Employees should also reconcile salary information appearing in AIS or tax portal reporting systems.

The Compliance Rule That Prevents Most Tax Disputes

Most cross-border salary disputes arise not because of complicated law but because documentation does not clearly show where services were performed.

Maintaining:

• travel records
• work location logs
• employment approvals
• salary receipt documentation

usually resolves such issues even during scrutiny proceedings.

Conclusion

The rise of remote work and global employment has created complex cross-border payroll structures, but the taxation principles under Indian law remain clear.

The place where employment services are performed determines where salary accrues.

The residential status of the individual determines whether global income becomes taxable in India.

Salary earned abroad and later remitted to India does not automatically become taxable for non-residents. However when employment services are performed in India, even temporarily through remote work, the corresponding portion of salary may become taxable in India.

In an era where professionals work through overseas portals while travelling between countries, disciplined documentation and proactive compliance are essential.

Employees and employers who maintain transparent records regarding travel, work location and salary flows can ensure that cross-border employment income is taxed correctly — and avoid unnecessary litigation with tax authorities.

Form 15H Invalid for Rent TDS under Section 194-IB: Legal Guide for Tenants Before Filing Form 26QC

 By CA Surekha S Ahuja

A Practical Compliance Guide for Tenants Before Filing Form 26QC

As the Form 26QC deadline approaches, many tenants paying rent above ₹50,000 per month face a recurring situation where landlords request them not to deduct TDS and instead provide Form 15H.

From a strict legal perspective under the Income-tax Act, 1961, this approach is incorrect.

Form 15H cannot waive TDS under Section 194-IB.

Where monthly rent exceeds ₹50,000, the tenant is required to deduct TDS at 5 percent, unless the landlord obtains a Lower or Nil Deduction Certificate under Section 197 through Form 13.

This obligation applies equally to salaried tenants, professionals, and all individual tenants, even if they normally discharge their taxes only through annual income tax return filing.

This note explains the legal position, compliance mechanism, practical solution through Form 13, and the safest approach for tenants to avoid penalties or disputes.

When TDS on Rent Becomes Mandatory

Section 194-IB applies where rent is paid by individuals or Hindu Undivided Families who are not liable for tax audit.

The provision was introduced to bring high-value rental transactions into the tax reporting framework without imposing complex compliance requirements on tenants.

Threshold Trigger

TDS becomes applicable when:

Monthly rent exceeds ₹50,000.

This rule applies even if the tenant:

• is a salaried employee

• does not maintain books of account

• is not engaged in business or profession

• files income tax returns only once annually

Once this threshold is crossed, the tenant becomes the person responsible for deducting tax at source.

Unique Deduction Mechanism under Section 194-IB

Section 194-IB provides a simplified deduction mechanism.

Unlike other TDS provisions, tenants are not required to deduct tax every month.

Instead, the law allows TDS to be deducted once at the end of the financial year or at the time of vacating the property, whichever occurs earlier.

Example

Monthly rent: ₹60,000
Annual rent: ₹7,20,000

TDS liability:

5 percent of ₹7,20,000 = ₹36,000

In most cases, the deduction is made from the final rent payment of the year.

Statutory Protection

The law specifically provides that:

TDS deducted under Section 194-IB cannot exceed the rent payable for the last month of tenancy.

This safeguard prevents situations where tenants must pay additional amounts from their own pocket.

Compliance Timeline

Once TDS is deducted, the tenant must complete the following compliance steps.

Compliance Requirement	Timeline
Deduction of TDS	End of financial year or termination of tenancy
Deposit of tax	Within 30 days using Form 26QC
Issue of TDS certificate	Form 16C within 15 days

If the tenancy continues until 31 March, the Form 26QC filing deadline is typically 30 April.

With this deadline approaching, tenants should verify whether TDS obligations have been properly discharged.

Why Form 15H Is Not Valid for Rent TDS

Form 15H is governed by Section 197A of the Income-tax Act, which allows certain taxpayers to declare that their total income is below the taxable limit and therefore TDS should not be deducted.

However, this declaration is permitted only for specific TDS provisions explicitly listed in the law.

Examples include:

• interest income under Section 194A

• certain dividend or investment incomes

Legal Position

Section 194-IB is not included in the list of sections covered under Section 197A.

Consequently, Form 15H cannot legally be used to avoid rent TDS under Section 194-IB.

Landlord Category	Validity of Form 15H
Resident senior citizen	Not valid
Resident individual below 60	Not valid
Non-resident landlord	Not permitted

Therefore, accepting Form 15H does not provide legal protection to the tenant.

Correct Legal Solution: Lower Deduction Certificate under Section 197

Where the landlord’s tax liability is genuinely lower than the standard TDS rate, the appropriate mechanism provided by law is Section 197.

Under this provision, the landlord may apply to the Income Tax Department for a Lower or Nil Deduction Certificate using Form 13.

Once issued, the certificate specifies:

• the applicable rate of deduction

• the financial year for which the certificate is valid

The tenant is then required to deduct tax strictly according to the certificate rate.

This provides complete statutory protection to the tenant.

Applicability Even Where the Tenant Is Salaried

A common misconception is that Form 13 is relevant only for business taxpayers.

In reality, Section 197 relates to the income recipient (the landlord) and not the person making payment.

Therefore, the certificate remains fully valid even where the tenant:

• is a salaried employee

• is not required to file TDS returns regularly

• pays tax only through annual return filing

Once a valid certificate is issued, the tenant simply follows the rate mentioned in the certificate.

Basic Process for Applying for Form 13

The application is made online through the Income Tax portal and generally requires minimal documentation.

Documents commonly required

• PAN of the landlord

• copy of rent agreement

• previous income tax return

• estimated income for the year

Filing steps

1. Login to the Income Tax portal

2. Select Application for Lower or Nil TDS Certificate

3. File Form 13 under Section 197

4. Upload supporting documents and submit

The processing period generally ranges from two to six weeks depending on jurisdiction.

Consequences of Non-Compliance

If the tenant fails to deduct TDS despite crossing the threshold, the following consequences may arise.

Default	Legal consequence
Failure to deduct TDS	Interest under Section 201
Penalty	Up to 100 percent of TDS amount
Late deposit	Interest at 1.5 percent per month
Serious defaults	Prosecution provisions

Example

Monthly rent: ₹60,000
Annual TDS: ₹36,000

Failure to deduct may result in tax demand, interest, and penalties that can exceed the original TDS amount.

Immediate Compliance Checklist for Tenants

Before filing Form 26QC, tenants should verify the following:

• Confirm whether monthly rent exceeds ₹50,000

• Calculate total rent paid during the financial year

• Deduct TDS at 5 percent from the final rent payment

• Deposit tax using Form 26QC within the prescribed timeline

• Issue Form 16C to the landlord

Where the landlord’s tax liability is lower, the correct approach is to request Form 13 under Section 197 rather than Form 15H.

Final Professional View

Section 194-IB was introduced to ensure proper reporting of high-value rental payments while keeping compliance simple for tenants.

Although Form 15H is valid for certain interest incomes, it cannot legally waive TDS on rent under Section 194-IB.

Where a lower deduction is justified, the correct mechanism is Form 13 under Section 197, which authorizes the Income Tax Department to allow reduced or nil TDS based on the landlord’s actual tax liability.

For tenants, the safest compliance rule remains straightforward:

Either deduct TDS at 5 percent or rely on a valid Form 13 certificate issued under Section 197.

Following this approach ensures complete legal compliance, avoids penalties, and protects both tenant and landlord from future tax disputes.

OCI, Employment, Universities, FEMA, Pension & Retirement Safety

By CA Surekha S Ahuja 

The Most Authoritative 2026 Legal Guide for Former Indian Citizens Holding Foreign Passports

(A Complete, Myth-Free, University-Focused, Retirement-Secure Master Note)

If you are a former Indian citizen holding a foreign passport — especially a professor, academic, researcher, consultant, or private sector professional — this is the most comprehensive legal guide you will read in 2026.

It integrates:

• Citizenship law

• OCI framework

• DU / JNU / Central & State University eligibility

• FEMA salary & repatriation rules

• Income-tax & Black Money disclosures

• PF / NPS / pension eligibility

• Retirement documentation safeguards

• Full penalty exposure under all relevant Acts

This is not a summary. This is the definitive position.

The Legal Foundation: Citizenship & OCI

Governing law:
Citizenship Act, 1955

Under Section 7A, a former Indian citizen may register as an Overseas Citizen of India (OCI).

OCI is not dual citizenship, but it grants:

• Lifelong multiple-entry visa

• Right to reside indefinitely in India

• Permission to work in private sector

• Eligibility for academic positions (subject to regulations)

• No need for employment visa

OCI can be cancelled only under Section 7D for fraud, terrorism, or prohibited activity.

There is no automatic cancellation for teaching, employment, or long service.

The Biggest Myths Destroyed

Let us eliminate fear first.

Myth 1: OCI cannot teach in Indian universities

False.

Universities governed by:
University Grants Commission

Under the UGC Regulations 2018, there is no blanket bar on OCI faculty.

Recruitment advertisements issued by:

• Jawaharlal Nehru University

• Delhi University

have explicitly permitted OCI candidates in recent cycles.

Academic posts ≠ civil services.

Myth 2: 20–25 years of non-disclosure creates criminal liability

No statute provides retrospective criminalization of past lawful service rendered before the 2005 OCI regime matured.

Before 2005:

• PIO and employment visa regimes applied.

• OCI did not exist in current form.

There is:

• No mass review

• No pension confiscation

• No automatic prosecution

At most, documentation clarification may be requested.

Myth 3: Pension or PF can be cancelled at retirement

There is no provision under:

Employees' Provident Funds and Miscellaneous Provisions Act, 1952

or any pension rule that cancels benefits solely because a person holds OCI.

If service was rendered and salary paid legally, retirement dues stand.

Delays may occur only due to documentation mismatch — not due to OCI status itself.

University Employment: The Real Legal Position

Academic Posts vs Government Posts

Under Article 16 of the Constitution:

Only citizens are eligible for civil services and certain sovereign functions.

However:

Teaching in Central or State Universities is not equivalent to IAS/IPS or constitutional posts.

Universities like:

• Jawaharlal Nehru University

• Delhi University

have recruited OCI candidates consistent with UGC norms.

There is no separate FRRO approval required for standard faculty roles.

Where OCI Actually Has Restrictions

Under:

Foreigners Act, 1946

OCI holders cannot undertake without permission:

• Missionary activities

• Research in restricted areas

• Journalism in protected zones

Violation under Section 14:

• Up to 5 years imprisonment

• Fine

• Possible deportation

Regular teaching does not fall under restricted activity.

FEMA Compliance: The Most Ignored Risk

Governing law:
Foreign Exchange Management Act, 1999

This is where most technical violations occur.

Residential Status Under FEMA

If physically present in India for more than 182 days in a financial year → Resident under FEMA.

Consequences:

• Salary must be credited to Resident Savings Account.

• Not NRE account.

Routing resident salary to NRE account may trigger Section 13 penalty:

• Up to 3 times the amount involved

• ₹5,000 per day for continuing contravention

This is administrative, not criminal — but financially significant.

Salary & Pension Repatriation

Permitted up to USD 250,000 per financial year under RBI regulations.

Requires:

• Proper banking channel

• Form 15CA / 15CB (if applicable)

University salary, PF withdrawals, pension, gratuity — all repatriable within limits.

Income Tax & Black Money Exposure

Governed by:

Income-tax Act, 1961
Black Money Act, 2015

If Resident (ROR):

• Global income taxable

• Foreign assets must be disclosed in Schedule FA

Penalty for non-disclosure:

• ₹10 lakh per year under Black Money Act

• Severe prosecution in extreme cases

If RNOR:

• Foreign income shielded for limited period

University salary is usually TDS-compliant. The risk lies in foreign asset disclosure — not academic income.

Pension, PF, NPS & Investment Eligibility

Employees’ Provident Fund

OCI employees are eligible.
Withdrawal allowed.
Repatriation allowed within FEMA limits.

No citizenship-based cancellation.

National Pension System (NPS)

Regulated by:

Pension Fund Regulatory and Development Authority

OCI/PIO may open and continue NPS subject to:

• Valid KYC

• Compliance with FEMA

• Indian bank account

If residential status changes, NPS can continue but subject to RBI rules.

Public Provident Fund (PPF)

If opened as resident before acquiring foreign citizenship:

• Can continue till maturity

• Cannot extend beyond original 15-year block

Investment Restrictions for OCI

Cannot:

• Purchase agricultural land

• Hold certain defence-sensitive positions

Can:

• Invest in mutual funds

• Hold shares

• Invest in listed securities

• Participate in automatic FDI routes

All subject to FEMA reporting.

Retirement Risk Analysis (Reality-Based)

Realistic Risks

Risk	Reality
HR seeks OCI documentation	Administrative
PF office seeks updated KYC	Normal compliance
Tax department scrutiny	Only if foreign assets undisclosed
Pension cancellation	No statutory basis
Deportation for long service	No precedent without violation

There is no known systemic cancellation of retirement benefits for long-serving OCI faculty.

OCI vs Indian Citizenship — Strategic Choice

Aspect	OCI	Citizenship
University teaching	Allowed	Allowed
Civil services	Not allowed	Allowed
Voting rights	No	Yes
Foreign passport retention	Yes	No
Retirement security	Same	Same

For academics and private professionals, OCI is typically sufficient.

Citizenship switch is necessary only if one desires sovereign government posts.

The Master Compliance Checklist (Retirement-Proof)

✔ Obtain OCI (if not already)
✔ Update university HR records
✔ Ensure correct FEMA bank classification
✔ File ITR annually
✔ Disclose foreign assets (if resident)
✔ Maintain PF/NPS records
✔ Avoid restricted activities
✔ Regularize repatriation documentation
✔ Conduct retirement documentation audit one year prior

Final Verdict — March 2026

For former Indian citizens holding foreign passports:

There is:

No automatic teaching ban
No pension cancellation provision
No retrospective criminalization for past service
No PF disqualification
No NPS prohibition

The real risks are only:

• FEMA misrouting of salary

• Tax non-disclosure

• Engaging in restricted activities

Compliance is administrative, not existential.

Thousands of OCI professionals — including faculty in premier institutions — continue service, retire smoothly, and receive full dues.

Fear is misplaced. Non-compliance is the only real danger.