Foreign Company Tax Audit in India 2026: Section 44AB, 44DA & Form 3CE
Updated: Sep 28
Quick answer: A foreign company or other non-resident can face more than one Indian audit requirement. For AY 2026-27, the ordinary tax-audit rules remain under section 44AB of the Income-tax Act, 1961. Separately, section 44DA requires a prescribed audit where royalty or fees for technical services are effectively connected with an Indian permanent establishment (PE) or fixed place of profession. The special section 44DA report is Form 3CE. These are different compliance tests and can overlap.
Update — 28 September 2026: CBDT changed the specified ordinary AY 2026–27 tax-audit report deadline from 30 September to 21 October 2026 and the related audited return deadline from 31 October to 21 November 2026. Section 92E / Form 3CEB cases follow a separate timetable. Official Income Tax Department announcement.
1. Why this matters for foreign companies and non-residents
Cross-border businesses often focus first on treaty PE exposure and withholding tax. But once an overseas enterprise is carrying on taxable business in India, has an Indian branch or PE, or earns royalty/FTS effectively connected with an Indian PE, audit obligations can become a separate compliance issue. Missing the correct audit form or deadline can create filing, penalty and assessment risk even where the underlying tax computation is otherwise defensible.
2. Section 44AB tax audit: the general business/profession test
For FY 2025-26 (AY 2026-27), section 44AB of the Income-tax Act, 1961 continues to govern the ordinary tax-audit requirement. The Income Tax Department has confirmed that the familiar thresholds remain in force for this year:
Business: tax audit where total sales, turnover or gross receipts exceed ₹1 crore.
Enhanced business threshold: ₹10 crore where cash receipts do not exceed 5% of total receipts and cash payments do not exceed 5% of total payments.
Profession: tax audit where gross receipts exceed ₹50 lakh.
Specified presumptive-tax cases can also trigger audit when the statutory conditions are met.
For a foreign enterprise, the threshold question comes after determining whether it is carrying on business or profession that is taxable in India. Treaty PE analysis and domestic-law attribution therefore remain foundational; the audit threshold does not itself create a PE.
3. Section 44DA: a separate audit for royalty/FTS linked to an Indian PE
Section 44DA is narrower but especially important for multinational groups. It applies where a non-resident (other than a company) or a foreign company receives royalty or fees for technical services from the Government or an Indian concern, carries on business through a PE in India (or performs professional services from a fixed place), and the right, property or contract giving rise to the royalty/FTS is effectively connected with that PE or fixed place.
Where section 44DA applies, the income is computed under “Profits and gains of business or profession” subject to the section’s expense restrictions. Sub-section (2) separately requires books and records and an audit by an accountant.
Form 3CE for AY 2026-27
For AY 2026-27, the prescribed special audit report is Form 3CE under Rule 6GA. Form 3CE requires the accountant to examine the PE/fixed-place accounts and certify, among other matters, the effective connection of the royalty/FTS and the computation of the section 44DA income.
4. Can section 44AB and section 44DA both apply?
Yes, depending on the facts. Section 44AB is the general tax-audit framework based principally on the nature and scale of business/professional activity. Section 44DA is a specific computation-and-audit regime for royalty/FTS effectively connected with an Indian PE or fixed place. A business should test both provisions rather than assume that Form 3CE automatically replaces a section 44AB audit or vice versa.
5. Which audit forms apply for AY 2026-27?
Form 3CA + Form 3CD: where the taxpayer’s accounts are already required to be audited under another law and section 44AB applies.
Form 3CB + Form 3CD: where section 44AB applies but the accounts are not audited under another law.
Form 3CE: the special section 44DA audit report for qualifying royalty/FTS effectively connected with an Indian PE or fixed place.
A foreign company should therefore map the legal basis for each audit report rather than treating all “tax audit” forms as interchangeable.
6. AY 2026-27 due dates: 30 September or 31 October?
The Income Tax Department has clarified that the tax-audit report for FY 2025-26 is still filed under the 1961 Act even though filing occurs after 1 April 2026. The ordinary audit-report due date is 21 October 2026 where the income-tax return is due on 31 October 2026.
Where the taxpayer is also subject to transfer-pricing reporting and the return due date is 30 November 2026, the audit-report deadline moves to 31 October 2026. Cross-border groups should coordinate Form 3CD, Form 3CE (where applicable), Form 3CEB and the return timetable as one compliance calendar.
7. Transfer pricing can create a second cross-border workstream
An Indian PE, branch or foreign company with international transactions with associated enterprises may also have transfer-pricing documentation and Form 3CEB obligations under section 92E. This is separate from both the ordinary tax audit and the section 44DA special audit.
For a broader overview, see PGT & Associates’ Transfer Pricing in India 2026 guide and the dedicated Form 3CEB AY 2026-27 guide.
8. Important 2026 transition: new Act, new form numbers
The year 2026 is unusual because two frameworks sit side by side. FY 2025-26 / AY 2026-27 remains governed by the Income-tax Act, 1961 for these audits. For Tax Year 2026-27 under the Income-tax Act, 2025, the ordinary tax-audit provision moves to section 63 and Forms 3CA/3CB/3CD are consolidated into Form 26.
The old section 44DA regime is carried into section 59 of the Income-tax Act, 2025. The special audit report also changes: Form 3CE is replaced by Form 24 under Rule 43 for Tax Year 2026-27. Businesses should therefore avoid using the new form numbers for AY 2026-27 filings merely because the filing date falls after 1 April 2026.
9. Practical examples
Example 1: foreign consulting company with no Indian PE
A foreign consulting company invoices an Indian customer but has no PE or fixed place in India on the assumed facts. Section 44DA is not triggered merely because the customer is Indian. The tax and treaty analysis may instead turn on the character of the income, source rules, treaty provisions and withholding. This example shows why PE analysis must come before choosing Form 3CE.
Example 2: royalty effectively connected with an Indian PE
A foreign technology company has an Indian PE and the licensed technology giving rise to royalty is effectively connected with that PE. Section 44DA can apply to the royalty/FTS stream, with books and the Form 3CE audit requirement for AY 2026-27. The company must separately test section 44AB and transfer-pricing obligations.
Example 3: Indian branch with high turnover
A foreign company operates through an Indian branch with taxable business receipts exceeding the applicable section 44AB threshold. The ordinary tax-audit framework can apply even if the branch does not earn royalty/FTS covered by section 44DA. In that situation Form 3CE may be irrelevant while Form 3CA/3CB with Form 3CD remains central.
10. Foreign-company audit checklist for AY 2026-27
Confirm whether the overseas enterprise has an Indian PE, branch or fixed place under domestic law and the applicable DTAA.
Map Indian-source business receipts and test the section 44AB thresholds.
Identify royalty/FTS streams and determine whether they are effectively connected with the Indian PE or fixed place.
Determine whether Form 3CA or Form 3CB applies, together with Form 3CD.
Where section 44DA applies, prepare the separate Form 3CE audit report and PE-level books/records.
Check Form 3CEB and transfer-pricing documentation for associated-enterprise transactions.
Align the 30 September / 31 October audit deadlines with the correct return due date.
Keep treaty positions, PE attribution workings, inter-office charges and withholding certificates reconciled to the financial statements and return.
For the general domestic audit framework, see our Tax Audit for AY 2026-27 guide.
11. Frequently asked questions
Is every foreign company in India required to file Form 3CE?
No. Form 3CE is tied to section 44DA. It is relevant where royalty or FTS is effectively connected with an Indian PE or fixed place and the other statutory conditions are met.
Does having an Indian customer automatically create a section 44DA audit?
No. An Indian payer by itself is not enough. The section requires the specified royalty/FTS and an effective connection with an Indian PE or fixed place.
Can a foreign company need Form 3CD as well as Form 3CE?
Potentially yes. The ordinary section 44AB tax-audit test and the special section 44DA audit test are separate. The facts should be checked independently.
What replaces Form 3CE under the Income-tax Act, 2025?
For Tax Year 2026-27 under the new Act, the corresponding special audit is Form 24 under section 59(4) and Rule 43. This does not change the forms used for FY 2025-26 / AY 2026-27.
12. Official references
How PGT & Associates can help
If an overseas group has an Indian PE or branch, royalty/FTS flows, related-party transactions or uncertainty over the correct audit report, PGT & Associates can assist with the Indian tax-audit, PE-attribution, transfer-pricing and cross-border compliance workstream. The right approach depends on the specific contracts, treaty, functions performed in India and accounting records; this article is general information and not a substitute for advice on particular facts.
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