Can a CA be exposed by a client’s suspicious foreign remittance? What Form 15CB means

Chartered accountants (CAs) certifying high-value foreign remittances could face greater professional scrutiny if the underlying transactions lack commercial substance or are inadequately documented, according to tax expert CA Suresh Surana. While Form 15CB is an important part of the foreign remittance process, Surana said issuing the certificate should not be treated as a routine procedural exercise.

The Income Tax Department has launched a nationwide verification exercise into suspicious foreign remittances based on ground intelligence and data analysis. It identified entities that remitted large amounts abroad despite reporting very low turnover or not filing tax returns.

Some payments, described as freight, software or consulting imports, did not match the entities’ stated businesses, while several firms were not operating from their declared addresses. The department also found a large number of Form 15CB certificates issued by a small group of professionals. The exercise covers around 394 entities, including 117 in land-border states, and 36 professionals.

Form 15CB is a certificate used in specified cases involving payments to non-residents and is intended to capture the tax implications of the remittance. According to Surana, tax authorities examining suspicious outward remittances may also look at the basis on which the certificate was issued and whether the professional undertook adequate due diligence.

“Form 15CB is not merely a procedural exercise. It requires a reasoned assessment of both the transaction and its tax consequences,” Surana said.

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What should a CA verify before issuing Form 15CB?

According to Surana, disproportionate remittances can attract attention when large sums are sent overseas by taxpayers with very low turnover, negligible income or limited evidence of corresponding business activity.

“Where a foreign remittance is disproportionate to the taxpayer’s turnover or business profile, the CA should not treat the transaction as a routine certification. The underlying commercial rationale, supporting documents and tax implications need to be examined carefully,” Surana said.

The professional should also assess whether the transaction has genuine commercial substance and is consistent with the remitter’s stated business activities and operational profile.

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Surana said the CA should determine the correct tax characterisation of the payment under the Income-tax Act. Depending on the nature of the transaction, an overseas payment could potentially involve royalty, fees for technical services, interest, business income or another category of income.

The CA should then evaluate the applicable withholding tax, including the tax rate and any gross-up implications where the Indian payer bears the tax liability.

Where a taxpayer seeks benefits under a Double Taxation Avoidance Agreement (DTAA), Surana said the CA should also examine relevant documentation, including the Tax Residency Certificate (TRC), Form 10F and other supporting declarations.

Beneficial ownership and Permanent Establishment (PE) considerations may also need to be evaluated where relevant, he said, as these factors can affect the tax treatment of a cross-border payment.

When can a remittance become a red flag?

According to Surana, disproportionate remittances can attract attention when large sums are sent overseas by taxpayers with very low turnover, negligible income or limited evidence of corresponding business activity.

Other potential red flags include payments that do not align with the taxpayer’s business, weak or inconsistent documentation, entities with little evidence of genuine operations and repeated remittances by multiple Indian entities to a common overseas beneficiary.

In such cases, Surana said CAs should exercise professional scepticism and satisfy themselves, to the extent possible, that the transaction has genuine commercial substance and adequate supporting documentation.

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How can CAs protect themselves?

Surana said professionals should maintain a clear audit trail of the documents reviewed, the representations received from clients, the tax position adopted and the reasoning supporting the Form 15CB certification.

In such cases, Surana said CAs should exercise professional scepticism and satisfy themselves, to the extent possible, that the transaction has genuine commercial substance and adequate supporting documentation.

“Professional scepticism is particularly important in cross-border transactions. A CA should be able to demonstrate that the certificate was issued after reviewing the relevant documents and evaluating the genuineness and tax character of the payment,” Surana said.

Independent verification of material facts, where appropriate, can also help demonstrate that the professional did not simply rely on the client’s assertions.

The broader issue, according to Surana, is that a CA’s role in foreign remittances extends beyond calculating withholding tax. Where transactions are unusually large or inconsistent with a client’s business profile, adequate documentation and professional judgement become critical to establishing that the certification was issued after appropriate due diligence.