Author: virevonadmin

Overseas Direct Investment (ODI) from India: Rules for Companies and Individuals

Indian businesses and founders are increasingly investing abroad, whether to set up a sales subsidiary in Dubai, acquire a small company in the UK or form a US entity to serve American clients. The ODI rules overseas investment framework under FEMA sets out who can invest, how much, in what and with what reporting. Getting the structure right at the start avoids approvals and compounding later.

The current framework came into force in August 2022 through the Foreign Exchange Management (Overseas Investment) Rules, 2022, the related Regulations and RBI’s Master Direction. This guide summarises the main rules for Indian companies and resident individuals.

Key takeaways

ODI means investment in unlisted foreign equity, or 10% or more of a listed company’s equity, or investment with control; other investments are overseas portfolio investment (OPI).
An Indian entity can make financial commitments up to 400% of its net worth; commitments above USD 1 billion in a financial year need RBI approval.
Resident individuals invest within the LRS limit of USD 250,000 a year, only in operating entities outside financial services, and cannot control an entity with its own subsidiaries.
Investments in real estate business, gambling and INR-linked financial products are prohibited.
Reporting runs through the authorised dealer bank: Form ODI before or at the time of investment, and an Annual Performance Report by 31 December each year.

ODI or OPI: the first question

Investment	Classification
Any equity in an unlisted foreign company	ODI
Less than 10% of a listed foreign company, without control	OPI
10% or more of a listed foreign company, or any stake with control	ODI
Debt, guarantees or pledges for a foreign entity in which ODI is made	Part of financial commitment

‘Control’ includes the right to appoint a majority of directors or to control management or policy decisions, including through shareholding of 10% or more of voting rights. Once an investment is classified as ODI, it remains so even if the stake later reduces, unless it is fully disinvested.

Rules for Indian companies and LLPs

Financial commitment limit

An Indian entity’s total financial commitment, covering equity, debt, guarantees and pledges, cannot exceed 400% of its net worth as per the last audited balance sheet. Some commitments are counted at a lower value, and some forms of guarantee are included only in part, so the calculation should be prepared carefully.

Where the investment can go

A foreign entity engaged in a bona fide business activity, directly or through step-down subsidiaries.
Investment in a foreign entity in the financial services sector is allowed subject to extra conditions, such as the Indian entity itself being in financial services and meeting profitability and regulatory tests.
Investment in start-ups abroad is allowed only from the Indian entity’s internal accruals.

Round-tripping safeguards

An Indian entity cannot make ODI in a foreign entity that has invested, or invests, in India if the structure results in more than two layers of subsidiaries, subject to specified exceptions. Structures such as an Indian parent owning a foreign company that in turn owns an Indian company need careful review.

Worked example

A Pune software company has net worth of ₹12 crore as per its last audited balance sheet. Its ODI limit is 400% of that, or ₹48 crore. It plans to invest USD 2 million (roughly ₹17 to 18 crore) in equity of a new Singapore subsidiary and give a corporate guarantee of USD 1 million for the subsidiary’s bank line. Both count toward the limit, which is comfortably met, so the investment can proceed under the automatic route with Form ODI filed through its AD bank.

Rules for resident individuals

Investment is made under the Liberalised Remittance Scheme, within USD 250,000 per financial year across all LRS remittances.
ODI is permitted only in an operating foreign entity, not engaged in financial services.
An individual cannot make ODI with control in a foreign entity that has a subsidiary or step-down subsidiary.
Shares can also be acquired by gift, inheritance, ESOPs or sweat equity, subject to conditions.
Remittances under LRS can attract TCS above the threshold at the time of remittance, which can be adjusted against income-tax.

If you are setting up a US entity as an individual, our guide to compliance for a US LLC owned by an Indian resident covers both sides of the border.

Prohibited investments

ODI is not allowed in a foreign entity engaged in:

Real estate activity, meaning buying and selling of real estate or trading in transferable development rights (building townships or infrastructure is permitted).
Gambling in any form.
Dealing in financial products linked to the Indian rupee without RBI approval.

Investments in certain jurisdictions, such as Pakistan, need government approval, and investment in countries identified as non-cooperative by FATF is restricted.

Reporting and ongoing compliance

Event	Report	Timeline
Financial commitment	Form ODI through the AD bank	Before or at the time of the investment
Evidence of investment	Share certificate or equivalent	Within six months
Annual performance	Annual Performance Report (APR)	By 31 December each year, based on the foreign entity’s accounts
Restructuring or disinvestment	Form ODI / FC as applicable	Within 30 days
Portfolio investments by listed Indian companies	Form OPI	Half-yearly
Foreign liabilities and assets	FLA return to RBI	By 15 July each year

Delays can generally be regularised by paying a late submission fee, under a formula similar to the one we explain in our guide to FDI reporting through FC-GPR and FC-TRS. An Indian entity with reporting delays cannot make further financial commitments until the delay is regularised.

Practical checklist before you invest abroad

Decide the investor: the Indian company, an LLP or the promoter individually.
Confirm ODI vs OPI and check the sector and jurisdiction restrictions.
Calculate the financial commitment limit from the latest audited net worth.
Obtain a valuation where the rules require it for acquisitions or transfers.
Pass board (and where needed, shareholder) resolutions.
Share documents with the AD bank, obtain the UIN and remit.
Calendar the share certificate, APR and FLA deadlines.
Plan the tax side, including transfer pricing for intra-group transactions and disclosure of foreign assets.

Frequently asked questions

What is the limit for an Indian company to invest abroad?

Up to 400% of its net worth as per the last audited balance sheet, with commitments above USD 1 billion in a financial year needing RBI approval.

Can a resident individual set up a company abroad?

Yes, within the LRS limit and in an operating business outside financial services. The individual cannot control an entity that has its own subsidiaries.

What is the due date for the Annual Performance Report?

The APR is due by 31 December each year for every foreign entity in which ODI has been made, based on its latest accounts.

Is RBI approval needed for most ODI?

No. Most investments fall under the automatic route through the AD bank. Approval is needed only in specified cases, such as exceeding the limits or investing in restricted sectors or jurisdictions.

If you are planning an overseas investment from India, our team would be glad to help you structure it and manage the FEMA reporting.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 15, 2026

Companies House Identity Verification and Annual Accounts: What UK Directors Should Know

The UK company register is changing more in these few years than in decades. The Economic Crime and Corporate Transparency Act 2023 introduced Companies House identity verification, which became a legal requirement for directors and people with significant control (PSCs) from 18 November 2025. At the same time, the familiar duty to file annual accounts on time continues, with further reforms to accounts filing planned from 2028.

For directors, especially those living outside the UK, the practical question is simple: what needs to be done, by whom and by when? This guide answers that in plain terms.

Key takeaways

Every director and PSC must verify their identity once and receive a Companies House personal code.
Existing directors provide their code when the company files its next confirmation statement after 18 November 2025; new directors must be verified on appointment.
PSCs have their own 14-day windows, depending on whether they are also directors and when they became a PSC.
Private company accounts remain due nine months after the financial year-end, with automatic late filing penalties.
From around April 2028, accounts must be filed through software, and small companies will need to file a profit and loss account.

Who must complete Companies House identity verification

Person	When the code is needed
New directors (appointed after 18 Nov 2025)	At appointment or incorporation
Existing directors	With the company’s next confirmation statement
PSCs who are also directors	Within 14 days after the confirmation statement date
PSCs who are not directors	Within the first 14 days of their birth month (during the transition year)
New PSCs (after 18 Nov 2025)	When added to the register, or within 14 days
LLP members	Along similar lines to directors

Identity verification for people who file on behalf of companies (presenters) is expected later, not before November 2027, when third-party agents will also need to be registered as Authorised Corporate Service Providers (ACSPs).

How to verify

There are two main routes:

Directly with Companies House, using GOV.UK One Login and an accepted photo ID, often through the GOV.UK ID Check app. Many overseas directors with a biometric passport can use this route.
Through an ACSP, such as an accountant or company formation agent registered with Companies House, who checks your identity and reports it.

Once verified, you receive a personal code. It is linked to you as an individual, not to a company, so the same code is used for every UK company you are involved with. Keep it safe and share it only with the person filing for your company.

Practical tips for overseas directors

Check that your passport is valid and machine-readable before starting.
Ensure your name matches exactly across the passport and the Companies House register; resolve differences before the confirmation statement is due.
If the app route does not work for your document, use an ACSP.
Diary the confirmation statement date, since that is the practical deadline for existing directors.

Annual accounts: deadlines and penalties

Identity verification sits alongside, not instead of, the annual accounts duty.

Private companies must file accounts within nine months of the end of the financial year.
First accounts are due 21 months after incorporation (if the first period is longer than 12 months).
The confirmation statement must be filed at least once every 12 months, within 14 days after the end of the review period.

Late filing penalties for a private company are automatic:

Delay	Penalty
Up to 1 month	£150
1 to 3 months	£375
3 to 6 months	£750
More than 6 months	£1,500

Penalties double if accounts are filed late two years in a row. Company tax returns to HMRC are a separate filing with their own deadlines.

Size categories

Company size thresholds were raised for financial years beginning on or after 6 April 2025. A micro-entity now has turnover up to £1 million and balance sheet total up to £500,000; a small company has turnover up to £15 million and balance sheet total up to £7.5 million (two of three conditions, including employees, must be met). Check which category applies each year, as it affects the form and content of accounts.

Accounts changes coming by 2028

Companies House has published a transition plan with the following reforms expected from April 2028, with advance notice:

All accounts to be filed using commercial software; paper and web-form filing of accounts will end.
Small companies and micro-entities to file a profit and loss account, with options on public disclosure.
The abridged accounts option to be removed.
Stronger audit exemption statements from directors.
Limits on how often a company can shorten its accounting reference period.

Moving your bookkeeping to cloud software now makes this change painless. Our comparison of QuickBooks Online vs Xero may help, and our guide to UK VAT returns under MTD covers the VAT side.

A simple annual checklist for UK directors

Confirm each director and PSC is verified and has a personal code.
File the confirmation statement on time with the codes included.
Close the books and prepare accounts well before the nine-month deadline.
File accounts with Companies House and the company tax return with HMRC.
Update the register promptly for any change of directors, PSCs or registered office.
Keep the registered email address current, as Companies House now uses it for statutory communications.

Frequently asked questions

Is Companies House identity verification a one-time requirement?

Yes. Each individual verifies once and receives a personal code, which is used for all their UK company roles.

I am an existing director. When do I need to verify?

You must provide your personal code when your company files its next confirmation statement due after 18 November 2025. It is sensible to verify well before that date.

Can a director living outside the UK verify identity?

Yes. Overseas directors can use the GOV.UK One Login route with an accepted document or verify through a registered ACSP.

What happens if I do not verify?

Failing to verify can be an offence and may affect the company’s ability to file. It also risks the director being shown as unverified on the public register.

If you are a UK company director and want help with identity verification, accounts or annual filings, we would be happy to support you.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 14, 2026

Appeal to the Income Tax Appellate Tribunal (ITAT): Process, Fees and Timelines

The Income Tax Appellate Tribunal is the final fact-finding authority in income-tax disputes. An ITAT appeal is usually filed after the Commissioner (Appeals) has decided the first appeal, and the Tribunal’s view on facts is generally final, with further appeals to the High Court limited to substantial questions of law. That makes this stage especially important to get right.

This guide explains who can file, the time limits under the Income-tax Act, 1961 and the new Income-tax Act, 2025, the fee structure, how to obtain a stay of demand and how to prepare for the hearing.

Key takeaways

Either the taxpayer or the department can appeal to the ITAT against orders of the CIT(A) and certain other orders, such as revision orders and DRP-directed assessments.
Under the 1961 Act, an ITAT appeal is filed in Form 36 within 60 days of the date on which the order is communicated; the 2025 Act uses Form 115 and a time limit counted from the end of the month of communication.
Fees range from ₹500 to a maximum of ₹10,000, depending on assessed income.
The other side can file cross-objections within 30 days of receiving notice of the appeal.
The Tribunal can grant a stay of demand, typically on deposit of at least 20% of the amount or suitable security.

Orders that can be appealed to the ITAT

Common examples include:

Orders of the CIT(A) or the Joint Commissioner (Appeals) on assessments, penalties and other matters.
Revision orders under section 263, where the Principal Commissioner sets aside an assessment as erroneous and prejudicial to revenue.
Assessment orders passed in pursuance of Dispute Resolution Panel directions.
Orders relating to registration of charitable trusts and approvals under certain sections.

The department appeals only where the tax effect crosses monetary limits. Under CBDT Circular No. 09/2024 dated 17 September 2024, the threshold for a departmental appeal to the ITAT is ₹60 lakh, subject to specified exceptions.

ITAT appeal time limits and fees

Item	Position under the 1961 Act
Form	Form 36 (cross-objections in Form 36A)
Time limit	60 days from the date the order is communicated
Condonation of delay	Possible on showing sufficient cause, with an affidavit
Fee: assessed income up to ₹1 lakh	₹500
Fee: above ₹1 lakh up to ₹2 lakh	₹1,500
Fee: above ₹2 lakh	1% of assessed income, up to ₹10,000
Fee: other matters	₹500
Stay application	₹500
Cross-objections	Within 30 days of receiving notice of the appeal; no fee in most cases

For orders under the Income-tax Act, 2025, the appeal lies under section 362 in Form 115, within two months from the end of the month in which the order is communicated. The fee slabs remain broadly the same. Always check which Act and form apply to the order you are challenging.

How to file an ITAT appeal

Step 1: Analyse the CIT(A) order

List each issue decided against you and the reasons given. Consider whether the finding is on facts, law or both. Drop weak issues; a focused appeal is more persuasive.

Step 2: Draft grounds and a short statement

Grounds should be numbered, concise and specific to the amount and the error. For example: ‘The learned CIT(A) erred in confirming the disallowance of ₹8,40,000 under section 40(a)(ia) without appreciating that the payee had offered the receipt in its return.’

Step 3: Assemble the appeal set

Form 36 duly signed and verified.
Certified or downloaded copy of the CIT(A) order and the assessment order.
Grounds of appeal before the AO/CIT(A) and before the Tribunal.
Fee challan.

Step 4: File through the ITAT e-filing portal

The Tribunal’s e-filing system allows appeals, stay applications and documents to be filed online. Keep the acknowledgement and watch for the notice of hearing.

Stay of demand before the Tribunal

An appeal to the ITAT does not automatically stop recovery. If the Assessing Officer is pursuing the demand:

First request a stay from the AO and, if needed, from the Principal Commissioner.
If recovery continues, apply to the Tribunal for a stay, showing a prima facie case, balance of convenience and possible hardship.
The Tribunal can grant a stay, generally subject to deposit of not less than 20% of the disputed amount or furnishing security of equal value.
A stay is granted for up to 180 days, extendable to a total of 365 days if the delay in disposal is not attributable to the taxpayer.

Preparing for the hearing

Paper book: an indexed, paginated set of documents that were before the lower authorities, with a certificate to that effect.
Case law compilation: judgments relied on, with relevant paragraphs marked.
Written synopsis: a two to three page note per issue, summarising facts, the lower authorities’ view and your submission.
Additional evidence: allowed only with the Tribunal’s permission and for good reason, so ideally everything should have been filed earlier.

Many benches hold hearings physically as well as through video conference. Be ready with the short facts; hearings often move quickly.

After the ITAT order

If the order has a mistake apparent from the record, a miscellaneous application can be filed within six months from the end of the month in which the order was passed.
The order is given effect by the AO, usually leading to a revised demand or refund; follow up if this is delayed.
A further appeal lies to the High Court within 120 days, only on a substantial question of law.

If you are still at the first appeal stage, our guide to filing Form 35 before CIT(A) explains that process, and our note on penalty under section 270A covers the penalty side.

Frequently asked questions

What is the time limit for an ITAT appeal?

Under the 1961 Act, 60 days from the date the order is communicated. For orders under the 2025 Act, two months from the end of the month in which the order is communicated. Delays can be condoned for sufficient cause.

What is the maximum fee for an ITAT appeal?

Where assessed income exceeds ₹2 lakh, the fee is 1% of assessed income subject to a maximum of ₹10,000. Lower slabs apply for smaller incomes.

Can I raise new grounds before the ITAT?

The Tribunal can admit additional grounds, particularly pure questions of law arising from facts already on record, but it is best to include all grounds at the start.

Is it necessary to pay the demand before filing an ITAT appeal?

There is no statutory pre-deposit for filing, but recovery can continue unless a stay is obtained, which usually requires paying a part of the demand.

If you are considering an appeal to the ITAT, our team would be glad to help you assess the issues and prepare the appeal.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 14, 2026

DRC-03 Voluntary Payment in GST: When to Use It and How DRC-03A Links Payments to Demands

Sooner or later most GST-registered businesses find a gap: output tax missed in an earlier month, credit claimed that should have been reversed, or a difference picked up in an annual reconciliation. A DRC-03 voluntary payment is the standard way to pay such amounts outside the regular GSTR-3B, and doing it early can significantly reduce or eliminate penalty.

For years, one practical problem remained: payments made through DRC-03 often did not get adjusted against a later demand order, so the portal continued to show the demand as outstanding. Form DRC-03A, introduced in 2024, fixes that. This article explains both forms and when to use them.

Key takeaways

DRC-03 is used to pay tax, interest and penalty voluntarily or in response to a notice, outside the regular return.
In non-fraud cases, paying tax and interest before a show cause notice generally means no penalty for that amount.
The cause of payment chosen in DRC-03 matters; select it carefully.
DRC-03A, under rule 142(2B), lets you link a DRC-03 filed as ‘voluntary’ or ‘others’ to a demand order, so the liability register reflects the payment.
Before filing an appeal, make sure pre-deposits and earlier payments are correctly linked to the demand.

When a DRC-03 voluntary payment makes sense

Typical situations include:

Short payment found in reconciliation, for example GSTR-1 liability higher than GSTR-3B for a past month.
Reversal of ITC that became ineligible, such as credit on blocked items under section 17(5) or unpaid supplier invoices beyond 180 days.
Annual return differences noticed while preparing GSTR-9 or GSTR-9C.
Response to a DRC-01A intimation, where part or all of the amount is accepted.
Audit observations under section 65 that you agree with.

For current-period errors, it is often simpler to correct through the next GSTR-3B. DRC-03 is better where the period is closed, where interest must be shown clearly, or where the officer expects a specific payment reference.

Penalty relief for early payment

The law rewards payment before or soon after a notice. The broad position is:

Stage of payment	Non-fraud cases	Fraud or suppression cases
Before show cause notice	Tax + interest; no penalty	Tax + interest + 15% penalty
After notice, within the window (30 days under sections 73/74; 60 days under section 74A)	Tax + interest; no penalty	Tax + interest + 25% penalty
After order (within the specified window)	Penalty as per order	Reduced penalty of 50% of tax where paid within the window

Sections 73 and 74 apply up to FY 2023-24, and section 74A applies from FY 2024-25. For the notice stage, see our guide on DRC-01A pre-show cause intimations.

How to file DRC-03

Log in and go to Services > User Services > My Applications, and choose Intimation of Voluntary Payment – DRC-03.
Select the cause of payment: voluntary, SCN, annual return, reconciliation statement, audit, investigation, others and so on.
Choose the section under which the payment is made and the tax period.
Enter tax, interest, penalty and fee head-wise (IGST, CGST, SGST/UTGST, cess).
Pay from the electronic cash ledger or, for tax, the credit ledger where allowed.
Submit with DSC or EVC and download the acknowledgement with ARN.

Interest under section 50 should be calculated and paid along with the tax; paying only the tax leaves a gap that may be demanded later. Keep the working, showing each period, amount and days of delay.

Worked example

In May 2026, a manufacturer found that a ₹4,20,000 IGST liability on a September 2025 invoice had been reported in GSTR-1 but left out of GSTR-3B. It paid ₹4,20,000 tax through DRC-03 under the cause ‘voluntary’, together with interest at 18% a year for the period of delay, and wrote to the jurisdictional officer enclosing the ARN and interest working. Because the payment came before any notice, no penalty applied.

The problem DRC-03A solves

Suppose a payment was made through DRC-03 during an audit, and later a demand order (DRC-07) was issued for the same amount. On the portal, the demand remained ‘outstanding’ because the earlier payment was not linked to it, which sometimes led to recovery action or difficulty in filing an appeal.

With rule 142(2B) (Notification No. 12/2024-Central Tax dated 10 July 2024), taxpayers can file DRC-03A to adjust that payment against the demand. GSTN enabled the form on the portal in November 2024.

Key features of DRC-03A

Only DRC-03 payments with cause ‘voluntary’ or ‘others’ can be linked.
One DRC-03 can be adjusted against more than one demand, and several DRC-03s can be linked to one demand, with a separate DRC-03A for each payment.
On submission, the electronic liability register is updated automatically.

Steps to file DRC-03A

Go to Services > User Services > My Applications and select DRC-03A.
Enter the ARN of the DRC-03 payment.
Choose the demand order from the drop-down list.
Check the auto-populated amounts, allocate the payment head-wise and submit.

Appeals and pre-deposit: link before you file

An appeal under section 107 requires payment of the admitted amount and a pre-deposit of 10% of the disputed tax, subject to the caps in the law. If part of the demand was already paid through DRC-03, link it through DRC-03A before filing APL-01, so the appeal form reflects the correct pre-deposit. Our guide on GST appeals under section 107 covers the appeal itself.

Frequently asked questions

Can I use input tax credit to pay through DRC-03?

Tax can generally be paid from the electronic credit ledger, subject to the usual utilisation rules. Interest, penalty and fees are paid in cash.

What if I chose the wrong cause of payment in DRC-03?

If the cause was ‘voluntary’ or ‘others’, you can link it to the relevant demand through DRC-03A. For other mismatches, write to the officer with the ARN and details.

Does a DRC-03 voluntary payment close the matter?

It settles the amount paid. Where a notice or proceeding is pending, inform the officer with the ARN and working so the proceedings for that amount can be concluded.

Is DRC-03A mandatory?

It is needed only where a DRC-03 payment has to be adjusted against a demand order. Without it, the demand may continue to show as outstanding.

If you need help working out a DRC-03 payment or linking earlier payments to a GST demand, our team would be happy to assist.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 13, 2026

FDI Reporting under FEMA: FC-GPR, FC-TRS and Timelines

Foreign investment into an Indian company brings capital and confidence, along with a set of reporting duties to the Reserve Bank of India. FDI reporting FC-GPR covers fresh issues of shares to non-residents, while FC-TRS covers transfers between residents and non-residents. Both are filed on RBI’s FIRMS portal through the company’s authorised dealer bank.

The process is routine once you know the sequence, but missed timelines can lead to late submission fees or compounding. This guide sets out the timelines, documents and practical steps for each form, with the annual return that follows.

Key takeaways

Reporting is governed by the FEMA (Non-debt Instruments) Rules, 2019 and the related reporting regulations, and filed on the FIRMS portal.
Shares must be issued within 60 days of receiving the foreign inward remittance, otherwise the money must be refunded within 15 days thereafter.
FC-GPR is due within 30 days from the date of issue of equity instruments.
FC-TRS is due within 60 days of transfer or receipt/remittance of funds, whichever is earlier, and is filed by the resident party.
Delays can usually be regularised by paying a late submission fee, and the FLA return is due every year by 15 July.

Before the first filing: FIRMS set-up

Companies need to register on FIRMS before any filing:

Entity master: the company’s details, registered once and updated on changes.
Business user registration: an authorised person (usually a director or company secretary) registered with supporting documents, approved through the AD bank.

Doing this early avoids a rush when the 30-day FC-GPR clock is running.

FDI reporting FC-GPR: fresh issue of shares

Sequence and timelines

Step	Timeline
Receipt of funds from non-resident investor through banking channels	Day 0
Obtain FIRC and KYC of the remitter from the AD bank	Soon after receipt
Allot equity shares, CCPS or CCDs	Within 60 days of receipt
If not allotted, refund the amount	Within 15 days after the 60 days
File FC-GPR on FIRMS	Within 30 days of allotment
File return of allotment (PAS-3) with the Registrar of Companies	Within 30 days of allotment

Documents typically required

FIRC and KYC report from the remitting bank.
Board resolution for allotment and, where relevant, shareholders’ special resolution.
Valuation certificate confirming the issue price is not below fair value as per pricing guidelines.
Declaration on sectoral cap and entry route (automatic or government approval).
Company secretary’s certificate on compliance with the Companies Act and FEMA.
Memorandum of Association, and the pre- and post-issue shareholding pattern.

Worked example

A Noida SaaS company received USD 400,000 from a Singapore investor on 5 May. The board allotted CCPS on 20 June, which is within 60 days. FC-GPR was due by 20 July. The company obtained the FIRC and KYC in May, commissioned the valuation before allotment and filed on 10 July. The AD bank raised one query on the valuation date, which was answered within a week, and the form was approved.

FC-TRS: transfers between residents and non-residents

FC-TRS applies when equity instruments of an Indian company are transferred:

From a resident to a non-resident (for example, a founder selling to a foreign fund).
From a non-resident to a resident (for example, a buyback by a resident promoter).

Key points:

The form is due within 60 days of transfer of the instruments or receipt/remittance of funds, whichever is earlier.
The resident transferor or transferee is responsible for filing.
Pricing must follow the guidelines: a resident selling to a non-resident cannot sell below fair value, and a non-resident selling to a resident cannot sell above it.
Up to 25% of the consideration can be deferred, placed in escrow or paid with indemnity for up to 18 months, subject to pricing compliance.
Transfers between two non-residents generally do not require FC-TRS.

Other reporting forms to keep in mind

Form DI: downstream investment by an Indian company that counts as foreign-owned or controlled.
FDI-LLP(I) and (II): for foreign investment into, and transfers in, LLPs.
Form CN: for convertible notes issued by startups.
ESOP reporting: for shares issued to non-resident employees.
FLA return: the annual return on foreign liabilities and assets, due by 15 July each year from every company that has received FDI or made overseas investment.

If your group also invests abroad, our guide to overseas direct investment rules covers the outbound side.

If a filing is delayed: late submission fee

Delays can generally be regularised by paying a late submission fee (LSF), computed as:

LSF = ₹7,500 + (0.025% × A × n), where A is the amount involved and n is the delay in years, rounded up to the nearest month and expressed to two decimals. The LSF cannot exceed the amount involved.

For example, an FC-GPR for ₹3.2 crore filed 7 months late gives n = 0.58. LSF = ₹7,500 + (0.025% × ₹3,20,00,000 × 0.58) = ₹7,500 + ₹4,640 = ₹12,140.

For longer or more serious contraventions, compounding with RBI may be required. Keeping a compliance calendar is far cheaper than either route.

Good practices for smooth FDI reporting

Plan valuation and board approvals before funds arrive, so allotment fits the 60-day window.
Ask investors to mention the purpose and the company’s details clearly in the remittance.
Keep one file per round: FIRC, KYC, valuation, resolutions, forms and approvals.
Align FEMA filings with company law filings such as PAS-3 and updates to the register of members.
Review sectoral caps and conditions before each round, especially where government approval may be needed.

For founders still setting up, our guide to private limited company registration covers incorporation basics.

Frequently asked questions

What is the time limit for FC-GPR?

FC-GPR must be filed within 30 days from the date of issue of equity instruments to the non-resident investor.

Who files FC-TRS?

The resident party to the transfer, whether transferor or transferee, is responsible for filing FC-TRS within 60 days.

What happens if shares are not allotted within 60 days of receiving funds?

The amount must be refunded to the investor within 15 days after the 60-day period. Continued retention is a contravention that may require compounding.

Is the FLA return required every year?

Yes. Companies that have received FDI or made overseas investment must file the FLA return by 15 July each year, including in years with no fresh investment.

If you are raising foreign investment or transferring shares with non-residents, we would be glad to help plan and file the RBI reporting.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 13, 2026

UK VAT Returns under Making Tax Digital: Bookkeeping Essentials

Every VAT-registered business in the UK now files through Making Tax Digital. A UK VAT return MTD submission is made from compatible software, using figures drawn from digital records without manual re-keying. When the bookkeeping behind it is sound, the return itself takes minutes; when it is not, errors, penalty points and corrections follow.

This guide focuses on the bookkeeping habits that make VAT returns accurate: how to set up VAT codes, handle cross-border transactions, reconcile the VAT account and meet deadlines under the points-based penalty system.

Key takeaways

MTD for VAT applies to all VAT-registered businesses, regardless of turnover, and requires digital records and digital links between them.
The compulsory registration threshold has been £90,000 of taxable turnover since 1 April 2024.
Returns and payments are generally due one month and seven days after the end of the VAT period.
Late returns build penalty points; a £200 penalty applies once the threshold is reached (4 points for quarterly filers).
Late payment penalties start if VAT remains unpaid after day 15, with a daily rate of 10% a year from day 31.

What MTD for VAT requires

Digital records

You must keep, in software or linked spreadsheets:

Business name, address, VAT number and the VAT schemes used.
For each supply made and received: the date, value and rate of VAT.
Any adjustments, such as bad debt relief, partial exemption or errors corrected.

Digital links

Where data moves between programs, for example from a sales system to a spreadsheet to bridging software, the transfer must be digital (imports, API links, formula links). Copy-and-paste or retyping totals does not meet the rules.

Setting up VAT codes correctly

Most errors start with the wrong tax code on a transaction. A sound code set typically includes:

Code	Use	Return impact
Standard 20%	Most UK sales and purchases	Boxes 1 and 4, net in 6 and 7
Reduced 5%	Domestic fuel and certain energy-saving items	Boxes 1 and 4
Zero-rated	Most food, books, children’s clothing, exports of goods	Net value only in 6 or 7
Exempt	Certain financial, insurance, education and health supplies	Net value only
Outside scope	Wages, dividends, certain non-business items	Not in the return
Reverse charge (services)	Services bought from overseas suppliers	Boxes 1 and 4, net in 6 and 7
Postponed import VAT	Goods imported under postponed VAT accounting	Boxes 1 and 4, net in 7

Check supplier invoices for the correct rate rather than assuming 20%, and use ‘no VAT’ codes for items such as train fares where no VAT is charged.

Cross-border transactions

These need particular care:

Services bought from abroad: a UK business buying, say, bookkeeping or software services from an overseas supplier usually accounts for VAT under the reverse charge, declaring output VAT and reclaiming it as input VAT in the same return (fully, if the business makes only taxable supplies).
Imported goods: under postponed VAT accounting, import VAT is declared and reclaimed on the return using the monthly PVA statement from HMRC, rather than paid at the border.
Exports of goods: usually zero-rated if you keep evidence of export within the required time.
Services supplied to overseas business customers: often outside the scope of UK VAT under the general place of supply rule, but still shown as a net value in the return.

A monthly bookkeeping routine for VAT

Record all sales and purchases with invoices attached in the software.
Reconcile bank accounts so that nothing is missing or duplicated.
Review VAT codes on new suppliers and unusual transactions.
Import PVA statements for any goods brought into the UK.
Reconcile the VAT control account: the balance should equal the VAT due for the open period, plus any unpaid prior liability.
Before filing, compare the draft return with the previous quarter and investigate large swings.

A quick worked example

A London design studio’s quarter shows UK sales of £60,000 plus £12,000 VAT, UK purchases of £8,000 plus £1,600 VAT, and £5,000 of bookkeeping services bought from an Indian provider. Under the reverse charge, it adds £1,000 to output VAT and £1,000 to input VAT. The return shows Box 1 of £13,000, Box 4 of £2,600 and net VAT payable of £10,400, the same amount as without the reverse charge, but with the transaction correctly reported.

Deadlines and penalties

For quarterly filers, the return and payment are due one month and seven days after the quarter ends (for example, a quarter ending 30 September is due by 7 November). Direct Debit collection happens a few days later.

Late submission: each late return adds a penalty point. The threshold is 2 points for annual, 4 for quarterly and 5 for monthly filers; at the threshold, a £200 penalty applies and each further late return adds another £200 while you remain there.
Late payment: no penalty if paid within 15 days; 3% of the amount outstanding at day 15 if paid between days 16 and 30; a further 3% at day 30 and a daily rate of 10% a year from day 31 if still unpaid.
Interest applies separately on late payments, and repayment interest may be due to you when HMRC pays late.

If cash flow is tight, contacting HMRC early about a time to pay arrangement can limit penalties.

Correcting errors

Errors below the reporting threshold can generally be corrected in the next return. Larger errors, or those made deliberately, need to be reported separately to HMRC. Keeping a short note of every adjustment and its reason makes a later enquiry much easier to handle.

For sole traders and landlords also moving to quarterly income tax reporting, see our guide to Making Tax Digital for Income Tax. If you are choosing a ledger, our comparison of QuickBooks Online vs Xero covers VAT features in both.

Frequently asked questions

Do small businesses below the VAT threshold need MTD for VAT?

Only if they are VAT-registered. Voluntarily registered businesses below £90,000 must follow MTD for VAT like everyone else.

When is a quarterly VAT return due?

One month and seven days after the end of the VAT quarter. The payment is due by the same date.

Can I still use spreadsheets for VAT?

Yes, if the spreadsheet is connected to HMRC through bridging software and all transfers of data are by digital links.

How long do I keep VAT records?

Generally for six years. Records must be kept digitally for the MTD requirements.

If you run a UK business and want clean books and on-time VAT returns under MTD, we would be happy to support you.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 13, 2026

Filing an Income Tax Appeal before CIT(A): Form 35, Time Limit and Grounds

When an assessment or penalty order adds to your income and you disagree, the first remedy is an appeal to the Commissioner of Income-tax (Appeals), commonly called the CIT(A). For orders under the Income-tax Act, 1961, the CIT appeal Form 35 is filed online, with a statement of facts and grounds of appeal. A carefully framed appeal, filed within time, is often the most effective step in resolving a dispute.

The Income-tax Act, 2025 has introduced a new form number for first appeals, and the Finance Act, 2026 has adjusted some related rules. This guide covers the essentials: which orders can be appealed, time limits, fees, drafting grounds and managing the demand while the appeal is pending.

Key takeaways

A first appeal lies to the CIT(A) or, in certain cases, the Joint Commissioner (Appeals), against orders listed in section 246A of the 1961 Act.
The appeal must be filed within 30 days of service of the notice of demand or the order, with condonation possible for sufficient cause.
Tax on the returned income must be paid before the appeal can be admitted.
Fees are ₹250, ₹500 or ₹1,000 depending on assessed income.
Under the Income-tax Act, 2025, the equivalent first appeal is filed in Form 99; the e-filing portal shows the form applicable to your order.

Which orders can be appealed

Common appealable orders include:

Assessment orders under section 143(3) or 144, and reassessment orders under section 147.
Intimations under section 143(1) where an adjustment has been made.
Penalty orders, including under section 270A.
Orders levying fees or interest in certain cases, and orders under section 154 that enhance liability or reduce a refund.
Orders treating a person as an assessee in default for TDS.

If the issue is a simple mistake apparent from the record, a rectification under section 154 may be quicker. Where the intimation itself is the problem, see our guide on the section 143(1) intimation.

Time limit and fees for a CIT appeal in Form 35

Item	Position
Time limit	30 days from service of the notice of demand (or the order, where no demand)
Late appeal	Can be admitted if there was sufficient cause; explain the delay with evidence
Pre-condition	Tax due on returned income paid; if no return, advance tax payable paid (with exemption possible for good reason)
Fee: assessed income up to ₹1 lakh	₹250
Fee: assessed income above ₹1 lakh up to ₹2 lakh	₹500
Fee: assessed income above ₹2 lakh	₹1,000
Fee: other matters	₹250

The fee is paid through the income-tax challan before filing, and the challan details are entered in the form.

Drafting good grounds of appeal

Grounds are the heart of the appeal. They should be concise, issue-wise and free of argument.

Structure that works

General ground that the order is contrary to law and facts (keep it short).
Specific grounds, one for each addition or disallowance, stating the amount and why it is wrong.
Procedural grounds, such as denial of a hearing or invalid notice, where relevant.
Interest and penalty grounds, noting that consequential interest and initiation of penalty are also disputed.
A reservation to add, alter or withdraw grounds.

Example

Suppose an order added ₹14 lakh as unexplained cash credit under section 68 and disallowed ₹2.2 lakh of interest. Good grounds would read:

‘The learned AO erred in adding ₹14,00,000 under section 68 despite confirmations, bank statements and ITRs of the lenders being filed, thereby establishing identity, creditworthiness and genuineness.’
‘The learned AO erred in disallowing interest of ₹2,20,000 without appreciating that the loans were used for the business.’

Statement of facts

The statement of facts tells the story: the business, the return, what happened in assessment and what was submitted. Keep it factual and chronological. Detailed legal arguments are better placed in written submissions later.

Filing the appeal online

Log in to the e-filing portal and open e-File > Income Tax Forms > Form 35 (or the form shown for your order).
Select the assessment year and the order being appealed; details are pre-filled where available.
Enter the date of service of the order and demand, the disputed amount and the fee challan.
Upload the statement of facts, grounds of appeal and supporting documents.
Verify with an electronic verification code or digital signature.

Most appeals are now heard under the faceless appeal scheme, with notices and submissions exchanged online and personal hearings through video conferencing on request.

Managing the demand during the appeal

Filing an appeal does not automatically stop recovery. To avoid coercive action:

Request a stay from the Assessing Officer, explaining the grounds and the prima facie strength of the appeal.
Administrative guidelines have generally allowed a stay on payment of a percentage of the disputed demand, historically 20%. Budget 2026 proposed a lower 10% payment for appeals under the new law, so check the current instruction for your case.
Where hardship is significant or the addition is clearly unsustainable, ask for a lower payment with reasons.
Track the demand on the portal and respond to any outstanding demand intimation promptly.

After filing: preparing for the hearing

Prepare a paper book with all documents already on record before the AO, indexed and paginated.
If new evidence is required, request admission under rule 46A, explaining why it could not be filed earlier.
File written submissions issue by issue, linking each to evidence.
Keep the appeal active; respond to every notice from the appellate unit on time.

If the CIT(A) order is not fully favourable, the next step is an appeal to the Tribunal, explained in our guide to ITAT appeals.

Frequently asked questions

What is the time limit to file Form 35?

The appeal must be filed within 30 days of service of the notice of demand, or of the order where there is no demand. Delay can be condoned if you show sufficient cause.

What is the fee for filing an appeal before CIT(A)?

It is ₹250 where assessed income is up to ₹1 lakh, ₹500 where it is above ₹1 lakh up to ₹2 lakh, and ₹1,000 where it exceeds ₹2 lakh. Other matters attract ₹250.

Can I add grounds after filing Form 35?

Yes. Additional grounds can be raised before the appeal is decided, especially where they arise from the record, although the appellate authority decides whether to admit them.

Does filing an appeal stop recovery of the demand?

No. A separate stay request is needed. Paying a portion of the disputed demand, as per current guidelines, usually supports the request.

If you are planning a first appeal against an income-tax order, our team would be happy to help frame the grounds and file it on time.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 12, 2026

DRC-01A Pre-Show Cause Intimation: What It Means and How to Respond

A DRC-01A is the GST department’s way of telling you, before a formal show cause notice, that it has worked out an amount of tax it believes is payable. It is issued under rule 142(1A) of the CGST Rules and gives you a chance either to pay and close the issue or to explain why the amount is not due.

Used well, this early stage can save interest, penalty and months of proceedings. This article explains what the form contains, the benefits of acting at this point and how to write a reply that the officer can accept.

Key takeaways

DRC-01A is a pre-show cause intimation in which the officer shares the tax, interest and penalty ascertained under section 73, 74 or 74A.
Part A sets out the liability; Part B is where you respond, by paying fully or partly or by filing submissions.
Paying tax and interest before a show cause notice in non-fraud cases generally means no penalty; in fraud cases a reduced penalty of 15% applies.
The use of the word ‘may’ in rule 142(1A) since October 2020 makes issuance discretionary, but many officers still issue it and courts value the opportunity it gives.
A reasoned, documented Part B reply often narrows or closes the issue before a show cause notice is issued.

Where DRC-01A fits in GST proceedings

Most demands follow a sequence:

Scrutiny, audit or data analysis identifies a possible short payment.
The officer may issue a DRC-01A with the ascertained amount.
If the matter is not settled, a show cause notice is issued in DRC-01 under section 73, 74 or 74A.
After hearing, an order is passed in DRC-07, which can be appealed.

For tax periods up to FY 2023-24, sections 73 (non-fraud) and 74 (fraud or suppression) apply. For FY 2024-25 onwards, both situations are covered by the single section 74A. Our guide on show cause notices under sections 73, 74 and 74A explains the next stage in detail.

Understanding the DRC-01A form

Part	Filled by	What it contains
Part A	Officer	The ground, tax period, section, tax, interest and penalty ascertained, and a date by which to pay
Part B	Taxpayer	Payment details (full or part) through DRC-03, or submissions disputing the amount
Part C	Officer	Acknowledgement of payment or acceptance of submissions

The intimation usually comes as a PDF on the portal under additional notices or by email, and the Part B reply is filed online against it.

Why the pre-notice stage matters

The law rewards early settlement of undisputed amounts:

Non-fraud cases (section 73 / 74A): paying the tax and interest before the show cause notice means the officer does not issue a notice for that amount and no penalty is levied.
Fraud or suppression cases (section 74 / 74A): paying tax, interest and a penalty equal to 15% of the tax before the notice closes the matter for that amount.

Once a notice is issued, these concessional outcomes narrow, so the DRC-01A stage is often the cheapest point to resolve genuine errors.

Three ways to respond

1. Agree and pay

If the officer’s computation is correct, pay through DRC-03, selecting the appropriate cause of payment, and link the payment in Part B. Keep a copy of the ARN and challan.

2. Agree in part

Often only part of the amount is valid. Pay the admitted portion with interest and, in the same Part B reply, explain why the balance is not payable. A clear split between admitted and disputed amounts shows good faith and focuses any later notice.

3. Disagree

If the amount is not payable, file detailed submissions with evidence. Common grounds include:

The difference arises from timing, such as invoices reported in a later month but already taxed.
Credit notes, amendments or exports were not considered.
ITC flagged as excess was reflected in GSTR-2B of a later period within the time limit.
The rate or classification applied by the officer is incorrect.
The period is outside the time limit for issuing a notice.

Worked example: an ITC difference

A Delhi-based trading company received a DRC-01A for FY 2022-23 stating that ITC claimed in GSTR-3B exceeded GSTR-2A by ₹9.8 lakh, with interest and penalty added. Its reconciliation found:

₹6.1 lakh of invoices appeared in suppliers’ returns filed in FY 2023-24 but related to FY 2022-23, and were within the time allowed under section 16(4).
₹2.4 lakh related to import IGST supported by bills of entry, which do not appear in GSTR-2A.
₹1.3 lakh was genuinely ineligible credit on a staff event.

The company paid ₹1.3 lakh with interest via DRC-03 and filed Part B with invoice copies, supplier filing proof and bills of entry for the rest. The officer accepted the reply and no show cause notice followed. For related credit rules, see our guide to blocked credits under section 17(5).

Drafting a strong Part B reply

Start with a summary table: amount per DRC-01A, amount admitted, amount disputed.
Deal with each issue separately, using the same headings as Part A.
Attach evidence in indexed annexures: reconciliations, invoices, e-way bills, bank proofs, supplier confirmations.
Cite the provision that supports your position, without long legal arguments at this stage.
Request a personal hearing if the issue needs explanation.
Reply by the date given in Part A, or seek more time in writing.

If the intimation follows a scrutiny notice, keep your earlier ASMT-11 reply consistent with the DRC-01A response.

Frequently asked questions

Is DRC-01A a show cause notice?

No. It is an intimation before a show cause notice. It gives you an opportunity to pay or explain, after which the officer decides whether to issue a formal notice in DRC-01.

Is it mandatory for the officer to issue DRC-01A?

Since October 2020, rule 142(1A) uses the word ‘may’, so issuance is discretionary. In practice many officers still issue it, and courts have noted its value as an opportunity for early settlement.

How do I pay against a DRC-01A?

Payment is made through FORM DRC-03 on the GST portal, and the payment is then referred to in Part B of the reply.

What happens if I do not reply to DRC-01A?

The officer is likely to issue a show cause notice for the full amount. You lose the chance to settle early and may face penalty in addition to tax and interest.

If you have received a DRC-01A, our team would be glad to review the computation and help you prepare a clear Part B reply.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 12, 2026

Penalty for Under-reporting and Misreporting of Income: Section 270A and Immunity under 270AA

When an assessment increases your income, the order often ends with a line initiating penalty under section 270A for under-reporting or misreporting of income. The difference between the two matters a great deal: under-reporting attracts a penalty of 50 percent of the tax on the under-reported income, while misreporting attracts 200 percent.

The law also offers a clean exit. Section 270AA lets a taxpayer seek immunity from penalty by accepting the assessment, paying the tax and not appealing. This guide explains how the penalty works, what counts as misreporting, how immunity operates, and what changed with the Income-tax Act 2025 and Budget 2026.

Key takeaways

Under-reporting attracts a penalty of 50 percent of the tax payable on the under-reported income; misreporting attracts 200 percent.
Misreporting covers specific acts, such as suppressing facts, unsubstantiated expense claims, false entries and unrecorded receipts or investments.
Several exceptions apply, including where you gave a bona fide explanation and disclosed all material facts.
Immunity under section 270AA is available if you pay the tax and interest demanded within the time allowed, do not appeal and apply within one month from the end of the month in which the order is received.
Under the Income-tax Act 2025 these provisions appear as sections 439 and 440, and Budget 2026 announced wider immunity, including for misreporting cases on payment of additional tax.

How the penalty under section 270A works

A person is treated as having under-reported income when, broadly:

the assessed income is higher than the income in the return processed under section 143(1);
no return was filed and the assessed income exceeds the basic exemption limit;
the income reassessed is higher than the income assessed or reassessed earlier; or
a loss or deemed income is reduced or altered to the taxpayer’s disadvantage.

The penalty is computed on the tax payable on the under-reported income, not on the income itself. The law has specific rules on how that tax is calculated in each situation.

Under-reporting vs misreporting

Aspect	Under-reporting	Misreporting
Penalty rate	50% of tax on under-reported income	200% of tax on under-reported income
Nature	Difference in income without specified wrongful acts	Arises from specified acts listed in the law
Typical examples	Disallowance on a debatable interpretation, estimates	Suppression of facts, false entries, unrecorded receipts
Immunity under 270AA	Available on conditions	Traditionally not available; wider relief announced in Budget 2026

The law lists the situations that amount to misreporting:

misrepresentation or suppression of facts;
failure to record investments in the books of account;
claim of expenditure not substantiated by any evidence;
recording of any false entry in the books of account;
failure to record any receipt in the books of account having a bearing on total income;
failure to report an international transaction or a specified domestic transaction to which transfer pricing provisions apply.

The assessment order and penalty notice should specify the particular limb invoked. Clarity on this point is important when replying.

Situations excluded from under-reporting

Certain amounts are not treated as under-reported income. The most relevant are:

where you offer an explanation that the officer finds bona fide and have disclosed all material facts to substantiate it;
where the addition is based on an estimate and your accounts are correct and complete, but the method used does not allow proper deduction of income;
certain additions based on transfer pricing adjustments where documentation was maintained and transactions were disclosed.

A worked example

Assume an assessment adds ₹10 lakh to a company’s returned income by disallowing a claim, and the tax on that ₹10 lakh works out to about ₹2.5 lakh.

If treated as under-reporting, the penalty is 50 percent, around ₹1.25 lakh.
If treated as misreporting, the penalty is 200 percent, around ₹5 lakh.
If the company accepts the addition, pays tax and interest within the demand notice period, does not appeal and applies for immunity within time, the under-reporting penalty can be avoided altogether.

The choice between appeal and immunity is therefore a real commercial decision. Where the disallowance is on a genuinely arguable legal issue, an appeal may be worth pursuing. Where the addition is small or weak to contest, immunity may cost less overall.

Immunity under section 270AA: step by step

Review the order and decide whether you accept the additions.
Pay the tax and interest demanded within the time given in the demand notice.
Do not file an appeal against the assessment order. If an appeal has been filed, the immunity route is generally not available.
Apply in Form 68 within one month from the end of the month in which the assessment order was received.
Wait for the order: the officer decides within one month from the end of the month in which the application is received, after giving an opportunity of being heard before any rejection.

Immunity also covers prosecution under the specified provisions for wilful evasion and non-filing linked to that assessment, which adds to its value.

What changed in 2026

From 1 April 2026, the Income-tax Act 2025 carries these provisions forward as section 439 (penalty) and section 440 (immunity) with the same core structure. Assessments of earlier years under the 1961 Act continue to refer to sections 270A and 270AA.

Budget 2026 announced two reforms aimed at reducing litigation: integrating assessment and penalty into a common order, and extending immunity to misreporting cases where the taxpayer pays additional income-tax, announced at 100 percent of the tax on the under-reported income, in place of penalty. Check the enacted wording and effective date carefully against your assessment year before relying on either reform.

If you decide to appeal instead, our guides on section 143(2) scrutiny replies and the section 142(1) notice show how a strong assessment record helps at every later stage.

Replying to a penalty show cause notice

Identify the limb: ask whether the notice alleges under-reporting or misreporting, and on which specific ground.
Show bona fides: point to disclosures in the return, audit report and assessment replies.
Challenge vague notices: a notice that does not specify the charge may be questioned.
Keep appeal timelines in view: the penalty order is separately appealable.

Frequently asked questions

What is the penalty rate under section 270A?

It is 50 percent of the tax payable on under-reported income, and 200 percent where the under-reporting results from misreporting.

Can I get immunity if I have filed an appeal?

Generally no. Immunity requires that no appeal is filed against the assessment order and that tax and interest are paid within time.

What is the time limit to apply for immunity?

The application in Form 68 must be made within one month from the end of the month in which the assessment order is received.

What are the new section numbers?

Under the Income-tax Act 2025, the penalty is in section 439 and immunity in section 440.

If you have received an assessment order with penalty proceedings and would like help weighing immunity against an appeal, we would be glad to discuss your options.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 11, 2026

Startup India DPIIT Recognition: Eligibility, Benefits and Section 80-IAC

DPIIT startup recognition is the gateway to most of the support the Government of India offers new ventures under the Startup India programme. It is free, applied for online, and increasingly valuable, because a February 2026 notification widened the definition of a startup and created a separate category for deep tech ventures.

Recognition is not the same as the income-tax holiday, though. The tax deduction formerly known as section 80-IAC needs a separate certificate from the Inter-Ministerial Board. This guide explains who is eligible, what recognition gives you, how the tax holiday works under the new Income-tax Act 2025, and how to apply.

Key takeaways

A notification dated 4 February 2026 (G.S.R. 108(E)) raised the general turnover ceiling for startup recognition to ₹200 crore and kept the age limit at 10 years from incorporation.
A new deep tech startup category allows recognition for up to 20 years with a turnover ceiling of ₹300 crore.
Private limited companies, LLPs and registered partnership firms are eligible, and the 2026 framework adds certain cooperative societies.
The income-tax holiday (section 80-IAC, now section 140 of the Income-tax Act 2025) needs a separate Inter-Ministerial Board certificate and is available only to companies and LLPs.
The old “angel tax” provision was omitted from AY 2025-26, so it is no longer a concern for startups raising funds.

Who qualifies for DPIIT startup recognition

The main conditions are:

Entity type: private limited company, LLP, registered partnership firm or eligible cooperative society.
Age: not more than 10 years from incorporation or registration (20 years for deep tech startups).
Turnover: not more than ₹200 crore in any financial year since incorporation (₹300 crore for deep tech).
Innovation: working towards innovation, development or improvement of products, processes or services, or a scalable business model with high potential for employment or wealth creation.
Not a reorganisation: the entity must not be formed by splitting up or reconstructing an existing business.

A deep tech startup is identified by attributes such as solutions based on new scientific or engineering knowledge, significant spending on research and development, meaningful novel intellectual property, and substantial technical uncertainty in development.

Benefits of DPIIT recognition

Recognition brings a practical set of advantages:

Self-certification under several labour and environmental laws for an initial period, reducing inspections in the early years.
Intellectual property support, including fast-tracked patent examination and fee rebates for patents, trademarks and designs.
Public procurement: relaxation of prior experience and turnover conditions in many government tenders, and earnest money deposit exemptions, subject to quality requirements.
Funding access: eligibility for the Startup India Seed Fund Scheme and funds supported through the Fund of Funds for Startups.
Faster exit: startups meeting the prescribed criteria can be wound up under a faster insolvency process.
Eligibility to apply for the tax holiday, explained below.

Many startups also register on Udyam to access MSME schemes. See our guide on Udyam registration benefits.

The tax holiday: section 80-IAC and section 140

The tax holiday allows an eligible startup to claim a deduction of 100 percent of profits from the eligible business for any three consecutive years out of the first ten years from incorporation. Under the Income-tax Act 2025, the provision appears as section 140; returns for FY 2025-26 and earlier still refer to section 80-IAC.

Point	DPIIT recognition	Tax holiday (80-IAC / section 140)
Who grants it	DPIIT	Inter-Ministerial Board (IMB)
Eligible entities	Company, LLP, partnership firm, eligible cooperative	Company or LLP only
Incorporation window	Within 10 years (20 for deep tech)	On or after 1 April 2016 and before 1 April 2030
Turnover test	₹200 crore (₹300 crore deep tech)	Separate limit in the tax law; check the current figure
Benefit	Regulatory, IP, procurement and funding support	100% profit deduction for 3 consecutive years out of 10

Remember that the tax holiday is a profit-linked deduction. It helps most when the business turns profitable, so choose the three-year block carefully. The minimum alternate tax provisions, where relevant to the company’s regime, should also be modelled before making the claim.

An example

A software company incorporated in June 2021 obtains DPIIT recognition in 2022 and the IMB certificate in 2024. It expects losses until FY 2025-26 and profits of ₹2 crore, ₹4 crore and ₹6 crore in the following three years. By choosing those three consecutive years for the deduction, it shelters the most profit, rather than wasting the holiday on early loss-making years.

How to apply for recognition

Incorporate the entity and obtain PAN. If you are still choosing a structure, our comparison of LLP vs private limited company may help.
Register on the Startup India portal and create a profile for the entity.
Fill in the recognition form with incorporation details, directors or partners, address, sector and a clear description of the innovation or scalability of the business.
Upload supporting documents, typically the certificate of incorporation and a short write-up, pitch deck, website link or patent details showing the innovation.
Self-certify the conditions and submit. The recognition certificate is issued online once approved.
Apply to the IMB separately for the tax holiday, with financial statements, a description of the business and evidence of innovation.

Tips for a strong application

Explain the innovation plainly. Describe the problem, your solution and what makes it new or scalable, in language a non-specialist can follow.
Keep records consistent. The business activity in your application should match your object clause, website and financial statements.
Track the limits. Monitor the age and turnover thresholds annually, especially as the business grows.
Maintain compliance. Timely ROC and tax filings support the IMB application and later scrutiny. Our note on ROC annual filing covers company filings.

Frequently asked questions

Is DPIIT startup recognition free?

Yes. There is no government fee for applying for recognition on the Startup India portal.

Does DPIIT recognition automatically give the tax holiday?

No. The tax holiday requires a separate certificate from the Inter-Ministerial Board and is available only to eligible companies and LLPs.

Can a partnership firm get DPIIT recognition?

Yes, a registered partnership firm can be recognised, but it cannot claim the section 80-IAC or section 140 tax holiday.

What happens when a startup crosses the turnover limit?

It ceases to be a startup for recognition purposes from that point. Benefits already availed are not generally reversed, but future benefits linked to status stop.

If you would like help with DPIIT recognition or preparing a strong application for the startup tax holiday, our team would be happy to guide you.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 11, 2026