Viksit Bharat is more than a national aspiration; it is the
collective resolve of a billion dreams striving to restore
India’s place among the world’s leading economies.
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under Section 2(2)(iv) of the Chartered Accountants
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the contact...Yes, as per the Code of Ethics, 2026 members
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Chartered...Yes, the Code of Ethics, 2026 expressly permits
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Ep. 101 — Transforming India’s Financial Sector and Capital Markets to Power a $30 Trillion Economy
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Transforming India's Financial Sector and Capital Markets to Power a $30 Trillion EconomyA vibrant, thriving financial sector is core to India's GDP growth ambitions.GDP — Nominal ($ Tn)1.2'08 → 3.9'24 → 302047 PFinancial Assets ($ Tn)1.8'08 → 6.9'24 → 1202047 PFinancial Assets to GDP1.5×'08 → 1.9×'24 → 4×2047 PBank Assets to GDP0.9×'08 → 0.9×'24 → 1.5×2047 PWhere India stands — 2024 snapshot vs. peersEconomyGDP ($Tn)Fin. Assets ($Tn)Fin. Assets / GDPBank Assets / GDPUSA291444.9×1.1×China19774.1×2.5×Germany4.7224.7×2.5×Brazil2.262.7×1.0×India3.96.91.9×0.9×Financial assets cover banks, central banks, financial auxiliaries, insurance corporations, OFIs, pension funds & public financial institutions. All values are on a CY basis except India's GDP, financial assets and banking assets, which are on an FY basis. Source: Financial Stability Board; BCG analysis.A defining economic transformation shapes every generation. For India, that transformation is already underway. Over the past decade, India has moved from a relatively closed economy to one of the world's fastest-growing major economies, with rapid digital infrastructure, vibrant democracy, and a rising demographic boon, fuelled by domestic consumption. A strong culture of entrepreneurship, favourable demographics and deeper integration with the global economy have significantly altered the country's economic trajectory.As India works towards becoming a $30 trillion developed economy by 2047, the next phase of Viksit Bharat development will require more than sustained growth in national income. It will demand a financial system that is deeper, more efficient, more resilient and more inclusive. The experience of advanced and rapidly developing economies offers a clear lesson: durable economic progress depends on the strength of the institutions that mobilise, allocate and manage capital.As economies expand from the current $4 trillion to $8 trillion over the next 6–8 years, their growth becomes increasingly capital-intensive. Infrastructure, manufacturing, urban development, clean energy, healthcare, technology and innovation require substantial pools of long-term finance. Meeting these requirements depends on a financial architecture capable of converting household savings into productive investment while supporting enterprises at every stage of their development. India has already established a strong foundation. Following years of balance-sheet repair, regulatory reform and improvements in governance, the banking sector is better positioned to support economic growth. The country's capital markets have also developed into some of the most dynamic among emerging economies, supported by stronger regulation, improved transparency, better corporate governance and increasing participation from domestic investors.These developments have strengthened investor confidence and enhanced the resilience of the financial system. However, the scale of India's ambitions will require a further and more fundamental transformation. Over the next two decades, India will need unprecedented levels of investment. Significant capital will be required for transportation networks, urban infrastructure, renewable energy, semiconductor manufacturing, defence production, logistics, digital connectivity and advanced industrial capacity.This investment cannot be financed through bank lending alone. Banks will remain central to financial intermediation, but they must increasingly be complemented by deep and well-functioning capital markets capable of providing long-term funding, absorbing risk, and supporting innovation-led businesses.Capital Markets as InstitutionsCapital markets must therefore assume a more strategic role in India's development. Equity markets are not merely venues for trading securities or raising funds. They are institutions through which entrepreneurs can convert ideas into scalable enterprises, companies can finance expansion, and investors can participate in long-term wealth creation.At the same time, the development of corporate bond markets, Infrastructure Investment Trusts, Real Estate Investment Trusts, Alternative Investment Funds and private credit is broadening the range of financing available to businesses and infrastructure projects. These instruments can reduce excessive dependence on bank balance sheets and provide capital better suited to long-duration investments.An equally important change is taking place in the composition of household savings.For many decades, Indian households preferred physical assets, particularly gold and real estate. That pattern is gradually changing. Mutual funds, equities, insurance products, pension schemes and fixed-income securities are becoming a larger component of household wealth.The expansion of systematic investment plans, the rise in retail participation in equity markets and the growing acceptance of long-term financial investing indicate increasing confidence in formal financial institutions. This financialization of savings is among the most consequential structural shifts in India's economy.A stable domestic pool of financial savings can provide the capital required to fund infrastructure, enterprise and innovation while reducing dependence on volatile external flows.“The next phase of financial inclusion must move beyond account ownership. It must focus on improving the quality, affordability and relevance of financial services available to households.The New-Age Growth EnginesThe next stage of India's economic development will also be shaped by sectors that had little commercial significance a generation ago. Cotton, textiles, real estate, IT services, and consumption have driven the journey to date. However, the journey for Viksit Bharat will be driven by new-age sectors like artificial intelligence, semiconductor manufacturing, financial technology, biotechnology, renewable energy, electric mobility, defence, aerospace, robotics, and space technology, which are creating new areas of economic activity.These industries can improve productivity, generate high-skilled employment and strengthen India's position in global value chains. However, many of them require long development cycles, substantial research expenditure and a high tolerance for risk. Their growth will depend on access to patient capital through venture funds, private equity, institutional investors and deep public markets.Artificial intelligence, in particular, may become one of the most important drivers of productivity in the coming decades. Unlike earlier waves of automation, such as banking and railway offices, which were largely focused on replacing repetitive tasks, AI has the capacity to augment judgement, improve decision-making, and enhance efficiency across a wide range of sectors.Within the banking and financial services industry, AI has already shown use cases for better loan assessment, enhanced fraud detection, better tax compliance, regulatory compliance, risk management, customer service, and investment analysis. In manufacturing, it can improve production planning, quality control and supply-chain management. Its wider adoption could generate productivity gains across the economy and contribute meaningfully to India's long-term growth. We haven't spent money on developing AI, but for a capital-hungry country, it can unlock significant savings in our day-to-day functions.India also possesses a distinctive institutional advantage in the form of its Digital Public Infrastructure. The largest NBFC recently announced that, through the use of AI, it is listening to almost 2 crore customer calls and has disbursed about INR 2000 crore in additional loan book. These kinds of changes are a real example of the efficiency AI brings. Many manufacturing companies, hospitals, and pharma companies are already using technology across various processes to achieve process cost efficiencies.A Digital Foundation for InclusionPlatforms such as Aadhaar (India's social security number), the Unified Payments Interface (UPI), DigiLocker, and the Account Aggregator framework have transformed the delivery of financial services to millions at low cost. They have lowered transaction costs, improved identity verification, expanded access and enabled financial innovation at exceptional scale.This digital foundation allows banks, insurers, wealth managers, fintech companies and asset managers to serve hundreds of millions of individuals more efficiently. India has the highest per capita data usage and has recently crossed the 1 billion broadband connection mark, which shows that it has also created the basis for one of the world's most extensive and scalable digital financial ecosystems.India has succeeded in bringing a large proportion of its population into the formal banking system. Yet access to a bank account does not automatically provide access to finance. Many individuals still lack affordable credit, adequate insurance, retirement products and suitable long-term investment options. There is a huge opportunity for companies with these tools available at their disposal.The next phase of financial inclusion must therefore move beyond account ownership. It must focus on improving the quality, affordability and relevance of financial services available to households.This challenge is particularly acute for Micro, Small and Medium Enterprises, which are central to employment generation, local economic activity and entrepreneurship.Technology can materially improve this situation. Future lending models are likely to rely increasingly on digital payment histories, GST filings, banking patterns, transaction data and cash-flow analysis.Expanding access to credit for individuals and enterprises would have effects far beyond financial inclusion. It would support education, home ownership, business formation, investment, job creation and productivity growth.A More Specialised EcosystemAs the economy develops, the role of financial institutions will also become more specialised.Banks will increasingly provide sophisticated financial, insurance and advisory services over and above the traditional deposit and credit lending functions. Asset management and wealth management companies will play a greater role in mobilising household savings.Insurance companies and pension funds can emerge as important sources of long-term capital. Fintech firms will continue to improve accessibility, efficiency and customer experience.A mature financial system will depend not on any single category of institution, but on the interaction of banks, markets, insurers, pension funds, asset managers, fintech companies and regulators within a coherent and well-governed ecosystem.“India's ambition to become a developed economy is beyond a higher level of GDP; it includes more jobs, a stronger manufacturing sector, savings mobilised into productive assets, and an economy that is more productive, innovative, resilient, and globally competitive.Realising that ambition will require sustained investment, technological advancement, strong institutions and a disciplined approach to capital allocation. Funds must flow towards the sectors, enterprises and infrastructure that can generate durable economic and social value.The financial sector, represented by over 30% weight in the index, will be the bridge between household savings and its financialization, leading to national development. Across banking, investments, access to credit, insurance, and other products, we are deeply underpenetrated. Technology will improve efficiency and inclusion, while artificial intelligence will reshape the design and delivery of financial services.Together, these forces can create a virtuous cycle in which savings are converted into investment, investment raises productivity, and higher productivity supports broad-based prosperity.If manufacturing builds the productive capacity of the nation, the financial system will provide the capital required to sustain it.The coming decades may therefore be remembered not only for the scale of India's economic expansion, but also for the emergence of a sophisticated, inclusive and technology-enabled financial system capable of converting domestic savings into innovation, enterprise and enduring national progress.Author may be reached at eboard@icai.in The Chartered Accountant · August 2026
Ep. 102 — Viksit Bharat@2047: Through the Lens of AI and Global Capability Centers
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Viksit Bharat@2047: Through the Lens of AI and Global Capability CentersAsk most people in major cities in India what “Viksit Bharat” means, and you’ll get a version of the same answer: a developed India by 2047, the hundredth year of independence. It’s a big, almost audacious target — a $30–40 trillion economy, built on inclusive growth, technological self-reliance, and a much louder voice on the world stage.The government has organised the vision around four groups it wants to lift: youth (Yuva), the poor (Garib), women (Mahila), and farmers (Kisan). Underneath all of it sits Atmanirbhar Bharat, the push for self-reliance, paired with an equally strong appetite for global partnerships and leadership in innovation and governance.Two things keep coming up whenever this vision gets discussed in policy circles: artificial intelligence and the explosive growth of Global Capability Centers, or GCCs. Together they’re doing a lot of the heavy lifting — creating high-value jobs, seeding indigenous innovation, and pulling India deeper into global supply and value chains. Prime Minister Shri Narendra Modi has said more than once that he wants India among the world’s top three AI powers — and not merely as a consumer of AI built elsewhere, but as a creator of sovereign, inclusive AI built on Indian terms.What follows is a look at how this vision came to be, where AI and GCCs fit into it (with examples), and what stands in the way between now and 2047.Where This Ambition Comes FromIt is worth reflecting on how far the journey has come from its humble beginnings. India in 1947 was a low-income economy just beginning to find its footing; today it’s the world’s fifth largest. That arc runs through the 1991 liberalization reforms, the Digital India push that took off around 2015, and more recently the production-linked incentive (PLI) schemes that tried to pull manufacturing back onshore.Getting to Viksit Bharat means sustaining something close to 8% annual GDP growth for two decades — a shift away from an economy driven mostly by domestic consumption toward one driven by manufacturing and innovation. That requires infrastructure most people take for granted in richer countries: better roads and ports, yes, but also the quieter digital plumbing — UPI, Aadhaar — that already underpins daily transactions for hundreds of millions of Indians. It requires skilling at a scale the National Education Policy 2020 is only beginning to attempt, and a genuine push toward net-zero, including a renewed bet on nuclear power.AI and GCCs matter here because they act as multipliers. They stretch the value of human capital further than it would otherwise go, and they pull in foreign direct investment that infrastructure alone can’t. India’s tech sector, GCCs included, is already a meaningful slice of GDP, and under an aggressive-adoption scenario, AI alone could add close to $1.7 trillion to the economy by 2035.Technology as the Connective TissueBeyond the four social pillars, there are strategic ones too: economic competitiveness, national security, global partnerships, strong legal and regulatory frameworks. Technology threads through all of them — semiconductors, quantum computing, supercomputing, and AI aren’t separate initiatives so much as the backbone that makes self-reliance possible at all.AI and GCCs matter here because they act as multipliers. They stretch the value of human capital further than it would otherwise go, and they pull in foreign direct investment that infrastructure alone can’t.The youth cohort — sometimes called Amrit Peedhi — is where a lot of this energy is concentrated. India already has the world’s third-largest startup ecosystem, and GCCs plus AI are turning what used to be described somewhat abstractly as a “demographic dividend” into actual jobs. Women-led enterprises are growing. Farmers are getting access, however unevenly, to precision agriculture tools built on AI. None of this is evenly distributed yet, but the direction is consistent.AI as the EngineIndia’s official framing is clear, concise, and impactful: “Make AI in India, Make AI Work for India.” The IndiaAI Mission, launched in March 2024 with an outlay of ₹10,372 crore, organizes the work around seven areas — compute infrastructure, foundational models, datasets, applications, entrepreneurship, skilling, and safe AI.On the compute side, capacity has grown fast — from around 10,000 GPUs to more than 38,000, made available to researchers and startups at subsidized rates of roughly ₹65 an hour. The stated goal is 100,000-plus publicly accessible GPUs, with private capacity pushing the national total well past 200,000.The more interesting story, though, is on the model side. Sarvam AI, a Bengaluru startup, was selected to build a sovereign large language model — one trained on Indian data, tuned to Indian languages and cultural context rather than adapted after the fact from a Western model. BHASHINI, the government’s multilingual AI initiative, supports similar work for public services. NITI Aayog has projected that AI could help push growth toward 8% annually, potentially lifting GDP to around $21 trillion by 2047, well above baseline projections without it.The sector-by-sector picture is wide: crop monitoring and yield prediction in agriculture, diagnostics and drug discovery in healthcare, personalized learning tools in education, predictive maintenance in manufacturing, fraud detection in finance. NITI Aayog’s roadmap singles out financial services, pharmaceuticals, manufacturing, and automobiles as priority sectors. The employment numbers being floated are large — up to 4 million new “AI-first” jobs by around 2030, with demand for AI talent expected to climb from roughly 800,000–850,000 today to over 1.25 million.Case · Sovereign AISarvam AI and the Case for Sovereign ModelsSarvam is a useful example of what “sovereign AI” actually looks like in practice. It’s building large language models trained on Indian datasets, capable across more than 20 languages, designed for voice-first use — which matters enormously in a country where a large share of the population is more comfortable speaking than typing. Access to IndiaAI Mission compute lets Sarvam train these models domestically rather than renting capacity or IP from abroad.The output feeds into “BharatGen,” aimed at public-service applications: a government chatbot that responds in a local dialect, for instance, isn’t a novelty here — it’s a genuine attempt to narrow the digital divide, and potentially something India could eventually export to other countries in the Global South facing similar language diversity.Case · Education & HealthMicrosoft and the ClassroomMicrosoft’s Bengaluru R&D team built AI tools that help Karnataka’s teachers generate personalized lesson plans, now integrated with the government’s DIKSHA education platform. In healthcare, a similar partnership with Apollo Hospitals produced a clinical AI assistant that reportedly saves doctors about 20% of the time they’d otherwise spend on data entry and record-keeping — time that goes back into seeing patients. Small efficiency gains like these, multiplied across a system serving over a billion people, add up.None of this is without friction. Data quality remains inconsistent. Talent retention is a real worry given how aggressively global firms compete for the same AI engineers. Compute-hungry training runs carry a real energy cost. The responses so far — responsible AI guidelines, large-scale reskilling programs like FutureSkills PRIME (which has already reskilled over 300,000 people), and deeper public-private collaboration — are reasonable starts, but nobody would call the problem solved.GCCs — No Longer the Back OfficeGlobal Capability Centers are, in essence, offshore units that multinational companies set up and fully own, rather than outsourcing to a third party, covering IT, R&D, analytics, finance, and increasingly, core product development. India now hosts the largest concentration of these centers anywhere in the world: roughly 2,100+ centers spread across 3,600+ individual units as of FY26, employing 2.2 million+ people and generating close to $98 billion+ in value. The ecosystem has grown 32% in size since FY21, with more than 500 new centers opening in recent years.What’s changed isn’t just the scale, it’s the nature of the work. Nearly half of these centers — 46% — now function as genuine “portfolio” or “transformation” hubs rather than cost-saving back offices, a marked shift from where things stood even a few years ago. AI and machine learning now run through more than 1,200 GCCs, supported by over 250 dedicated AI centers of excellence and more than 250,000 AI professionals — roughly 28% of the entire global GCC AI workforce sits in India. Hiring reflects this: an estimated 510,000 jobs are expected in 2026 alone, and 64% of them will require AI or data skills. Bengaluru remains the anchor, with around 1,080 units, followed by Hyderabad and the National Capital Region, while Tier-2 cities are now the fastest-growing segment of the map.The roster of companies setting up shop keeps widening too: Forbes Global 2000 firms, private-equity-backed companies, and newer entrants like Anthropic and Marriott. Increasingly, the innovation flow runs in both directions — products and solutions built in Indian GCCs are shipped out globally, not just adapted from headquarters.Case · Enterprise SoftwareSAP Labs and JouleSAP’s Bengaluru center built Joule, a generative AI copilot that sits across SAP’s enterprise software suite, letting users automate tasks and pull insights through natural-language queries. It was conceived and built in India, then rolled out globally — a fairly clean example of a GCC moving from support function to genuine product owner, which is exactly the kind of IP-building Atmanirbhar Bharat is meant to encourage.Case · RetailWalmart and Retail IntelligenceWalmart Global Tech India uses machine learning out of its Bengaluru hub for inventory forecasting, real-time product substitutions, and personalized recommendations — work that ultimately optimizes supply chains at global scale and cuts waste. There’s a sustainability angle too, in more efficient logistics. The savings run into the billions, and there’s an obvious path for these techniques to filter into Indian retail through Walmart’s stake in Flipkart, potentially pulling local small businesses into more sophisticated supply networks.Case · Pharma & HealthcarePharma and Healthcare GCCsNovo Nordisk’s India operation leverages AI across drug development support, regulatory documentation, and personalized diabetes care. Amgen’s Hyderabad center focuses on precision oncology analytics, backed by an investment north of $200 million. Siemens Healthineers uses AI in diagnostic imaging and radiology. Collectively, this work shortens R&D timelines and lowers costs, which matters directly for India’s stated goal of $350 billion in pharmaceutical exports by 2047.Case · Manufacturing & EnergyManufacturing and EnergyIn steel and energy, GCCs are using computer vision for defect detection and predictive maintenance, and for optimizing things like waste-heat recovery. At least one center reported a meaningful drop in downtime and carbon footprint as a result. Applied more broadly, this kind of work supports both the green transition and the manufacturing self-reliance that PLI schemes are trying to build.Beyond the direct economic output, GCCs are quietly building India’s digital sovereignty, cybersecurity capability, data localization practices, and a deep bench of trained talent that didn’t exist at this scale a decade ago. Many now work closely with local startups and universities, which is arguably where the longer-term payoff lies.Where AI and GCCs Reinforce Each OtherThe connection between the two isn’t incidental. Indigenous AI models reduce reliance on imported technology; GCC-driven R&D feeds into the broader push around semiconductors and AI hardware under Semicon India. Together they generate millions of jobs, give youth a reason to stay and build rather than emigrate, open doors for women in tech, and modernize agriculture and healthcare from the ground up.GCCs are turning India into more of an innovation exporter than an outsourcing destination — and combined with digital public infrastructure like UPI and the Open Network for Digital Commerce (ONDC), India is increasingly exporting its governance models, not just its labour.There’s a global dimension too. That said, geopolitical friction and global competition for talent means policy must stay nimble, especially around data protection law and IP frameworks.Closing ThoughtsViksit Bharat@2047 isn’t just an economic target, it’s closer to a national reinvention — and AI and GCCs are two of its clearest working examples. Sarvam’s sovereign models, SAP’s and Walmart’s product innovations, and the healthcare breakthroughs coming out of pharma GCCs all point to something concrete rather than aspirational: this is already happening, unevenly but genuinely.Whether India actually gets there by 2047 depends less on any single technology and more on follow-through — largely around policy continuity, sustained investment in skills, and enough patience to let institutions mature. If it works, the result won’t just be a bigger economy; it’ll be a different kind of development story, one built as much on indigenous capability as on capital. That’s the harder version of the bet India has placed, and the next two decades will show whether it pays off.The Chartered Accountant · August 2026 Author may be reached at eboard@icai.in
Ep. 103 — From Vision to Execution: The Leadership Imperative for India @2047
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From Vision to Execution: The Leadership Imperative for India @2047India's ambition to become a developed nation by 2047 is both timely and demanding. The country enters this period with considerable strengths: a large domestic market, a young population, an expanding digital economy, a growing entrepreneurial base and greater influence in global affairs. Yet none of these advantages will automatically produce a developed India. Demographic potential can become demographic pressure. Technology can widen inequality instead of reducing it. Economic growth can coexist with inadequate public services, weak institutions and limited employment opportunities. The real test of Viksit Bharat is not the scale of the vision but the discipline of its execution.India has never lacked ideas, policies or programmes. The more persistent difficulty has been converting national intent into consistent outcomes across ministries, states, districts and institutions. A policy announced in New Delhi may be understood differently in different states and may encounter an entirely different reality when it reaches a municipal office, a village, a school or a small enterprise. The journey to 2047 must close this distance between policy and performance.This makes leadership central to the development process. Leadership in this context does not refer only to political authority. It includes administrative leadership, business leadership, institutional leadership and professional leadership. It must also extend beyond a few individuals. India will need a system in which thousands of people, working at different levels, can make sound decisions, accept responsibility and remain focused on long-term national goals.Turning 2047 into a sequence of achievable commitmentsA date as distant as 2047 can inspire, but it can also create a false sense that there is sufficient time. In public policy, twenty-one years is not a long period. A child entering school today will be part of the workforce before 2047. Infrastructure commissioned during the next few years may remain in use well beyond the centenary of Independence. Similarly, weaknesses in health, education and urban planning that are ignored today will become far more expensive to correct later. The first responsibility of leadership is, therefore, to translate the national vision into measurable intermediate commitments. India needs clear milestones for 2030, 2035 and 2040, supported by annual targets and public reporting. The World Bank estimates that India's gross national income per person would need to rise nearly eightfold from prevailing levels for the country to attain high-income status by 2047.Building institutions that can deliverOne of the common misinterpretations of strong leadership is that it denotes an over-centralised decision-making process. Central direction, however, must be exercised judiciously during a crisis or at the launch of a significant mission. But the management of a country as large as India cannot be done through central control. Local conditions are too different, and the search space too large. District officials should have room to adapt programmes to local needs, while remaining accountable for results. Municipal bodies, which will manage much of India's future urban growth, cannot continue to function with limited revenue, inadequate staff and fragmented authority. The quality of routine administration will matter as much as the quality of flagship projects. For a citizen, the state is experienced through an application processed on time, a functioning hospital, a safe road, a reliable water supply or a dispute resolved without years of delay. Viksit Bharat will become credible when these ordinary interactions become predictable.Institutional reform must also reduce the cost of compliance. The Economic Survey 2024–25 placed considerable emphasis on deregulation and argued that the next phase of reform must include systematic action by the states (Government of India, 2025). The objective should not be the absence of regulation. India requires firm standards in areas such as financial integrity, competition, labour protection, consumer safety and the environment. The need is for regulation that is clear, proportionate and consistently applied. Frequent changes, overlapping approvals and uncertain interpretation penalise honest businesses while creating room for discretion. Trust is an economic asset. When rules are stable and public institutions act within predictable timeframes, businesses invest with greater confidence and citizens are more willing to comply. Building such trust will be one of the most important, though less visible, leadership tasks of the coming decades.Making employment the centre of the growth strategyIndia cannot be the developed nation it aspires to be if its economic growth generates only a fraction of the quality jobs required. Employment links dignity with growth, and consumption with tax revenue and social stability. It should be regarded as a policy objective in its own right, rather than as an automatically expected by-product of economic policies. Growth is required in manufacturing, modern services, construction, tourism, care work, logistics and food processing. India also needs stronger small and medium enterprises, which provide jobs outside a few big companies. Access to credit remains vital for these firms, but finance is not sufficient by itself. They need:PowerSkilled workersTimely paymentBetter logisticsAccessible technologySimpler complianceEmployment growth will depend to a very large extent on the quality of education and training.While institutions need to be incentivised to innovate, there must also be accountability in terms of outcomes. Instead of grumbling about skill shortfalls, industry should help with curriculum design, apprenticeships and faculty development.We should focus on women's economic participation in India. Improved transport, secure jobs, childcare and flexible working hours are rights, not just welfare. They dictate the extent to which the nation makes the most of its talent. No country can attain developed status with a major portion of its educated populace outside the formal economy.❝ India needs clear milestones for 2030, 2035 and 2040, supported by annual targets and public reporting. The World Bank estimates that India's gross national income per person would need to rise nearly eightfold from prevailing levels for the country to attain high-income status by 2047. ❞Using technology without surrendering judgementIndia's digital public infrastructure has shown that technology can deliver services at a scale that was previously difficult to imagine. The next phase may use artificial intelligence and data systems in health, agriculture, taxation, education and urban management. NITI Aayog has also identified digital public infrastructure as an important means of achieving inclusive and scalable growth (NITI Aayog, 2026).Technology, however, should not be confused with reform itself. A poorly designed process does not become efficient merely because it is moved online. Digitisation can reproduce old confusion in a new format. The flip side is that it may also rule out those who do not have connectivity, language support or digital confidence.Prior to employing any new system, leadership must answer two simple questions. Does it work for a regular citizen without an intermediary? Is there an equitable means of redressing a mistake?Accountable government must therefore go hand in hand with data-driven government. Automated decisions, especially those affecting benefits, tax, access to credit or public services, should be reviewable. Cybersecurity and privacy need to be seen as an essential public good. A developed India should embrace technology to enhance human judgement rather than shy away from responsibility for decisions.Atmanirbharta should not be seen as looking inwards and shutting oneself away from the world. India will rely on foreign engagement in international trade, investment, technological partnerships and critical minerals supply chains. The capacity for self-reliance, consequently, should be based on domestic productive capability: designing, making and funding products or services in ways that let them compete in international markets.Protection sometimes provides a new industry with breathing space, but permanent protection dulls the incentive to get ahead. Public support must therefore be performance-, innovation- and export-linked. Indian firms need to aim for global standards on quality, cost, sustainability and corporate behaviour.This same principle will apply to research and innovation. India requires far more money for scientific research, and far greater independence for institutions and consequential scrutiny. Closer collaboration is needed between universities, public laboratories, start-ups and established firms. Innovation hardly ever comes from one initiative; it emerges from a culture that allows for questioning, embraces calculated risk and has an appetite to learn via failure.Ultimately, how India fares will depend on the strength of its institutions and actors. India's reputation will depend on whether contracts are fulfilled, disclosures are accurate, standards are met and disputes are settled fairly. A reputation lost is costly to earn back.Leadership through financial and professional integrityThe transition to a developed economy will require enormous public and private investment. Infrastructure, energy transition, urban development, health, education and technological capacity will all compete for financial resources. The quality of investment will matter as much as its quantity.Independent evaluation, reliable statistics, legislative scrutiny, professional audit and public consultation all improve the quality of decisions. They also protect long-term goals from short-term enthusiasm. Evidence may sometimes be inconvenient, but a country cannot manage a transformation of this scale by rewarding only favourable information.Most long-term programmes diverge from the original plan. India's trajectory will be shaped by economic shocks, climate events, technological disruptions and geopolitical ripples. That said, leadership needs to balance persistence of purpose with flexibility of method.Governments and organisations need to periodically re-examine major programmes and reveal what has worked, what has not and how they will change moving forward. The admission of a mistaken policy course should be considered responsible administration and not failure.The leadership testViksit Bharat is a shared horizon for India, which makes it valuable. But talking alone will not see us to 2047. Over the next twenty years, it will be determined by choices made in budgets, classrooms, boardrooms, laboratories, courtrooms and municipal offices.India does not require theatrical leadership; the focus should be on the practical side instead. It creates incentives, allocates accountability and is responsive to evidence. It gives capable individuals space to operate yet expects results and accountability. Even when inconvenient, it preserves the integrity of institutions. Most importantly, it understands that national rankings are not how citizens experience development; they experience it as opportunity, security, dignity and a belief in the future.India is ambitious in its vision. The challenge now is whether the nation can develop the habits of execution demanded by this vision. If it can, 2047 will be much more than just one hundred years after Independence. It will signify the coming of age of a country that learnt how to transform aspiration into enduring public value.ReferencesGovernment of India (2025), Economic Survey 2024–25, Ministry of Finance, New Delhi. https://www.indiabudget.gov.in/budget2025-26/economicsurvey/index.phpNITI Aayog (2025), India's Path to Global Leadership: Strategic Imperatives for Viksit Bharat @2047, Government of India, New Delhi. https://www.niti.gov.in/node/1630NITI Aayog (2026), DPI@2047 for Viksit Bharat: A Strategic Roadmap to Enable Non-linear Inclusive Socio-economic Growth, Government of India, New Delhi. https://niti.gov.in/sites/default/files/2026-04/DPI-2047-for-Viksit-Bharat-A-Strategic-Roadmap-to-Enable-Non-linear-Inclusive-Socio-economic-Growth.pdfVirmani, A. (2024), Viksit Bharat: Unshackling Job Creators and Empowering Growth Drivers, NITI Aayog, New Delhi. https://www.niti.gov.in/sites/default/files/2024-07/WP_Viksit_Bharat_2024-July-19.pdfWorld Bank (2025), India Country Economic Memorandum: Becoming a High-Income Economy in a Generation, World Bank, Washington, DC. https://openknowledge.worldbank.org/entities/publication/79e6a188-2329-42d4-91cf-b11c1b3cb8beAuthor may be reached at rudreshpandey@gmail.com and eboard@icai.inThe Chartered Accountant August 2026 / www.icai.org
Ep. 104 — Performance over Privilege: The 16th Finance Commission’s New Fiscal Formula
CA Journal
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Performance over Privilege: The 16th Finance Commission's New Fiscal FormulaIntroductionThe President of India constituted the extant 16th (XVI Finance Commission) Finance Commission in accordance with Article 280 of the Indian Constitution under the Chairmanship of renowned economist Sri. Arvind Panagariya, former vice-chairman of NITI Aayog. Its primary mandate is to define the financial relationship between the Central Government and the States for a five-year "award period." This committee had submitted its report on 17th November, 2025, and the same was placed in Parliament on 1st February 2026, on the same day as Budget 2026-27.Like the 15th Finance Commission, it has also recommended transferring 41% of the Centre's Gross Tax Revenue (GTR) to the states. Unlike the 13th and 14th Finance Commissions, which employed only four parameters, both the 15th and 16th Finance Commissions have used six criteria for distributing central taxes among states, but with a twist. This commission has dropped the state's tax effort criteria and introduced, for the first time, a new criterion — contribution by a state to the country's GDP with a weight of 10%.Among all the parameters, the most dominant one is the income distance criterion. The commission has reduced the weightage by 2.5% (from 45% to 42.5%). This parameter spells out how far a state's average per capita income is below the per capita income computed by taking the three best-performing states. As this parameter is enjoying a greater share, it helps the poor states to get a better share. Other parameters that have seen a reduction in their weights are demographic performance by 2.5% and area by 5%. The Commission has assigned 10% weightage to the new criteria by reducing the weightage of the above three parameters.The weightage for the population criterion was enhanced by 2.5%, effectively replacing the 2.5% weightage previously assigned to the states' tax effort criterion, which had been introduced by its predecessor. Of these six criteria, it is the forest criterion that alone has enjoyed the same weightage under both the 15th and 16th Finance Commissions as depicted in table no. 01.Considering the contribution by a state to national GDP, it has helped almost all better-performing states as their share in the devolution has increased a little, including Karnataka.Taxes to be sharedThe following are the Central taxes divided among the states:Corporation TaxPersonal Income TaxCentral Goods and Services TaxCenter's share of IGSTTable No. 01: Criteria for distribution of the center's taxes among states in the 16th Finance CommissionCriteria15th FC Weight16th FC WeightChange in %Income Distance45%42.50%-2.5Population (2011)15%17.50%2.5Area15%10%-5Forest & Ecology10%10%0Tax Effort2.50%0%-2.5Contribution to GDP0%10%10Demographic Performance12.50%10%-2.5Total100%100% Source: 16th Finance Commission ReportThe divisible pool forms about 81% of the Center's Gross Total Revenue for 2025-26 after excluding cesses and surcharges.States that have gained and declined their share in the 16th Finance CommissionThe 16th Finance Commission has tweaked the formula of horizontal distribution; as a result, 14 states have gained marginally in their share of the divisible pool of taxes, and the other 14 states have witnessed a decline in their share.The above table no. 02 depicts that among all the states that witnessed a gain in their share, Karnataka is the biggest gainer. Its share has been increased to 4.131%, up from 3.647% under the 15th Finance Commission. This hike in its share is likely to increase around Rs. 12,248 crore annually to the state's exchequer.Together, these states receive a higher tax share by 2.41% points. The commission would like to recognize the contribution made by these states in enhancing the nation's GDP.Table No. 02: List of states that have witnessed a slight increase in their shareSl. No.StatesShare in Central taxes in RE of FY 2026 (%)Share in Central taxes in BE of FY 2027 (%)Increase (%)1Andhra Pradesh4.0474.2170.172Assam3.1283.2580.133Gujarat3.4783.7550.2774Haryana1.0931.3610.2685Himachal Pradesh0.830.9140.0846Jharkhand3.3073.3570.057Karnataka3.6474.1310.4848Kerala1.9252.3820.4579Maharashtra6.3176.4410.12410Mizoram0.50.5640.06411Punjab1.8071.9960.18912Tamil Nadu4.0794.0970.01813Telangana2.1022.1740.07214Uttarakhand1.1181.1410.023 Total37.37839.7882.41Source: Budget FY 2026-27Table no. 3 shows that among all the states, the share of Madhya Pradesh has witnessed a huge decline of 0.503%. The marginal decline in their share is because the "needs-based" criteria (poverty/income gap) were diluted to reward "growth-based" criteria.Table No. 03: States that have witnessed a decline in their shareSl. No.StateShare in Central taxes in RE of FY 2026 (%)Share in Central taxes in BE of FY 2027 (%)Difference (%)1Arunachal Pradesh1.7571.354-0.4032Bihar10.0589.948-0.113Chhattisgarh3.4073.304-0.1034Goa0.3860.365-0.0215Madhya Pradesh7.857.347-0.5036Manipur0.7160.626-0.097Meghalaya0.7670.631-0.1368Nagaland0.5690.481-0.0889Odisha4.5284.42-0.10810Rajasthan6.0265.926-0.111Sikkim0.3880.335-0.05312Tripura0.7080.641-0.06713Uttar Pradesh17.93917.619-0.3214West Bengal7.5237.215-0.308 Total62.62260.212-2.41Source: Budget FY 2026-27States bargainMany states have demanded a larger share. Around 18 states have demanded an enhancement of the state's share of distributable tax from 41% to 50%. Besides, they also demanded the inclusion of cess and surcharge in the divisible tax pool. Of course, the cess and taxes collected and retained by the central Government have been declining from the FY 2024-25 as depicted in table no. 04.However, the commission has a different version and views that "states already account for more than 2/3rd of the nation's non-debt revenue" and any further increase would adversely hinder the Government's fiscal space and its ability to meet national obligations.Further, the Commission suggests that if both the center and states would like to have an efficient and broad based tax system, they should come to a mutual Consensus in which case the center would forgo a large part of the revenue from cesses and surcharges into divisible pool of taxes and state would also agree to forgo a small share of this increased center's divisible pool of taxes, that protects interest of both the parties.Table No. 04: Reduction in Cess and Surcharge (Rs. in Cr)5,29,342 2024-254,93,550 2025-26 (RE)4,49,720 2026-27 (BE)Source: 16th Finance Commission Report and Union BudgetMajor discontinued grants in the 16th Finance CommissionThe Commission explicitly stated that it would not recommend three specific types of grants that were provided during the previous Finance Commission's tenure:Revenue Deficit Grants (RDG): The Commission has scrapped this grant to encourage states to achieve fiscal self-reliance and improve their own tax-to-GSDP ratios, and rationalize the expenditures.State-specific Grants: Grants previously pegged for specific sectors like health, education, or agriculture have been discontinued. These sectors are better funded through Centrally Sponsored Schemes (CSS) or the state's own increased tax shares.Sector Specific Grants: Specialized grants for specific projects within a single state, like building a specific bridge or university, have been scrapped to prevent political subjectivity and ensure a uniform formula-based distribution.Recommendations to bring fiscal discipline to the State and the CenterMost defining feature of the 16th Finance Commission report is its aggressive stance on Off-Budget Borrowing (OBB) by the States. The Finance Commission's report mandates that all OBB must be brought onto the books to ensure investors and the Union have a clear picture of India's debt-to-GDP ratio.The Finance Commission has established a clear fiscal roadmap to ensure long-term stability and debt sustainability for both the Union and the states. Deficit target for the state is 3% of its SGDP and the center 3.5% of GDP by the end of the award period (March 2031).Strategic Roadmap for the Next Finance CommissionWith a view to bringing financial discipline among the states, this Finance Commission has recommended the discontinuation of the Revenue Deficit Grants (RDG) to the states.The table no. 05 shows Revenue Deficit Grants provided during the last four Finance Commissions and the number of states benefited from the grants.In contrast to the prevailing practice of earlier Finance Commissions, this Commission explicitly mentioned in Para 9.48 of its report that it will no longer undertake assessments of post-devolution revenue needs for each state, nor will it recommend grants on this basis.Keeping in view the revenue-generating potential of some states and hill states like Himachal Pradesh and Uttarakhand, where tax collection potential is limited, the Commission could have proposed a gradual phasing out of the RDG instead of discontinuing it abruptly.To bring transparency into the devolution of taxes, the 16th Finance Commission has recommended that the center unveil financial data pertaining to the net proceeds, as certified by the Comptroller and Auditor General under Article 279 of the Constitution. It is also advisable on the part of the center to certify that the rate of vertical devolution of the tax pool is in tune with the rate of devolution as recommended by the Finance Commission.Table 06 illustrates that throughout the 15th Finance Commission's tenure, the effective rate of devolution consistently fell short of the recommended 41% target.Currently, the center collects cesses and surcharges that do not form part of the divisible pool of taxes. These now account for more than 10% of the Government of India's gross tax revenue (Table 4). Given that almost all states are demanding their inclusion in the divisible pool, future Finance Commissions should give serious attention to this issue.Keeping in view the FRBM Act, the Finance Commission advises both the center and the state governments to bring the combined debt from 77.3% in 2026-27 to 73.1% of GDP by 2030-31. This trajectory aims to instill fiscal discipline and eliminate hidden liabilities, ensuring a transparent reflection of India's sub-national debt. Consequently, both the center and the states should strictly adhere to these recommendations.Horizontal tax devolution currently relies on six criteria, where need-based factors like equity, population, and area carry over more than two-thirds of the weight. Performance-based criteria, such as demographic performance, contribution to GDP, and forest account for only one-third. Many performing states argue that this distribution is skewed and penalizes efficiency. To ensure fairness, the future Finance Commission should reassess the weightage assigned to various parameters rationally.The newly introduced GDP contribution criteria employ the "Square Root" formula to determine a state's share in horizontal distribution. The square root formula was meant to protect smaller states, but it creates a diminishing incentive. The square root function flattens the curve. A state that is 100 times larger than another in terms of GDP only receives a 10-fold reward. This ensures that the 10% weight doesn't lead to a catastrophic drop in funds for smaller or mid-sized states.Consequently, the core objective of the efficiency-based criterion is largely undermined by 'neutralizing' the reward. The formula fails to provide a meaningful fiscal incentive for states to maximize their economic contribution. The Finance Commission should guarantee an evenhanded relationship between performance and fiscal payoff.Table No. 05: Revenue Deficit Grants provided during the four Finance CommissionsCommissionsAmount provided (Rs in Cr)No. of States Benefited12th FC56,8561513th FC51,800814th FC1,94,8211115th FC2,94,51417Source: Finance Commission reports of 12th, 13th, 14th and 15thTable No. 06: Devolution of Taxes among StatesYearStates Share (in Cr)Divisible Pool (in Cr)Share (in %)2021-228,83,10022,17,73739.82022-239,48,98225,48,72337.22023-2411,29,49429,55,29638.22024-2512,86,88532,57,51339.52025-26 (RE)13,92,97135,74,60039.02026-27 (BE)15,26,25539,44,11038.7Source: 15th and 16th FC Reports and Union BudgetConclusionThe 16th Finance Commission marks a historic pivot in India's fiscal architecture. By introducing a 10% weightage for "Contribution to GDP", the Commission has finally addressed the long-standing grievance of industrial states, moving away from a purely redistributive model. While it maintained the vertical devolution at 41%, the real impact lies in its demand for fiscal discipline, specifically the strict ban on off-budget borrowings. Ultimately, the 16th FC serves as a financial manifesto for "Viksit Bharat 2047," signaling that the next phase of India's growth will be driven by efficiency, transparency, and urban transformation.ReferencesSixteenth Finance Commission — asset/doc/commission-reports/16th-FC/reports/Vol1-Main-Report.pdfUnion Budget of IndiaAuthor may be reached at mallikarjunbalit@gmail.com and eboard@icai.in
Ep. 105 — Accounting for Tomorrow: Mastering the Shift to Universal Sustainability Standards
CA Journal
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Accounting for Tomorrow: Mastering the Shift to Universal Sustainability StandardsThis article provides a clear overview of global sustainability and climate-related reporting frameworks, tracing the evolution from the Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB), Climate Disclosure Standards Board (CDSB) and Global Reporting Initiative (GRI) to the consolidated IFRS Sustainability Standards — IFRS S1 and IFRS S2 — issued by the ISSB. It explains how these standards integrate financial and sustainability disclosures, emphasizing concepts such as enterprise value, materiality, and climate-related risks. With SEBI's Business Responsibility and Sustainability Reporting (BRSR) and ICAI's sustainability assurance initiatives, the landscape in India is rapidly evolving. The article highlights emerging opportunities for Chartered Accountants in sustainability reporting, assurance, and strategic advisory as ESG disclosures become mainstream and globally aligned, and positions Indian Chartered Accountants as the natural leaders of this capital-market transformation, drawing on their successful Ind AS convergence experience.Sustainability, climate change, and climate finance are among the recent buzzwords echoing through geo-politics, national politics and are even impacting the business landscapes. Even ICAI and SEBI have foreseen this trend, which is evident in their recent steps like SEBI's 2025 circular that revised the BRSR norms — including a tiered implementation for the top 1,000 listed companies and "BRSR Core" adoption with assured KPIs for the top 250 companies — and the launching of initiatives like SAE 5000 by ICAI.Even the IFRS Foundation has come out with IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Information — and IFRS S2 — Climate-related Disclosures — in June 2023, introducing the first global standards for the disclosure of investor-focused sustainability information.However, these recent standards are not pioneer efforts to establish globally accepted frameworks for sustainability. Multiple earlier initiatives have paved the way, as detailed in Table 01 below.Table 01 · Initiatives for Sustainability StandardsSr. No.ParticularsIssued byYear1Task Force for Climate-related Financial Disclosure (TCFD)FSB20152Sustainability Accounting Standards Board StandardsSASB20183Climate Disclosure Standards Board FrameworkCDSBMultiple4Global Reporting Initiative (GRI) FrameworkGRIF2016This multiplicity of standards can lead to confusion among professionals as to their application in a given scenario. This article aims to resolve these concerns of Indian Chartered Accountants. It emphasizes a brief account of the standards and where they can be used. It is also important to note that the IFRS Foundation, via the ISSB, has subsumed some of the above-mentioned bodies and attempted to integrate their disclosures in IFRS S1 and S2.Task Force for Climate-related Financial Disclosure (TCFD)It was established in 2015 by the Financial Stability Board (FSB). It focused on improving climate-related financial disclosures, with an emphasis on transparency and comparability. It classified risks into physical (e.g., extreme weather) and transition (e.g., policy shifts to low-carbon economies). Disclosures were structured around four pillars: Governance, Strategy, Risk Management, and Metrics & Targets. TCFD has been fully integrated into ISSB standards.Sustainability Accounting Standards Board Standards (SASB)It is a not-for-profit organisation focused on financially material ESG disclosures. SASB provided 77 industry-specific standards across five dimensions (Environment, Social Capital, Human Capital, Business Model & Innovation, Leadership & Governance). Emphasizing financial materiality, it was merged into the IFRS Foundation in 2022 and serves as guidance in ISSB standards.Climate Disclosure Standards Board (CDSB)Aiming at integrating environmental reporting with financial statements, CDSB targeted investors by equating natural and financial capital. It featured guiding principles (e.g., relevance, verifiability, forward-looking) and reporting requirements aligned with TCFD pillars. CDSB's content has been consolidated into ISSB standards.The Global Reporting Initiative (GRI) StandardsTill date it is widely used for stakeholder accountability. GRI emphasizes impact materiality (effects on economy, environment, and people), which is a combination of financial and non-financial factors. Its modular structure includes Universal Standards (foundation, general disclosures, material topics), Sector Standards (industry-specific), and Topic Standards (detailed ESG issues). While not fully subsumed, GRI complements ISSB by focusing on broader impacts.All these diverse standards overwhelm business owners and even professionals providing assurance on their statements. Further, with the addition of the EU's CBAM (Carbon Border Adjustment Mechanism), EUDR (European Union's Deforestation Regulation) and other similar statutes, one can only expect ESG and sustainability reporting to further expand.However, this plethora of standards and disclosures exhibits a silver lining for Chartered Accountants and other professionals in India. CAs are at the forefront of Financial Reporting and Auditing in India. This, coupled with the ongoing drive for incorporating sustainability and ESG reporting, provides a great opportunity for Chartered Accountants to reap maximum benefit from this integration movement.Another blessing in disguise came in the form of the establishment of the International Sustainability Standards Board (ISSB) by the IFRS Foundation. The above-mentioned CDSB, TCFD, SASB Standards and even the Integrated Reporting framework have been subsumed in ISSB. The IFRS Foundation is a not-for-profit organization which sets the reporting standards globally. Indian Accounting Standards (Ind AS) represent an adopted version of standards issued by IFRS. These were further finetuned by ICAI to suit domestic requirements by carve-ins and carve-outs.It is imperative to view IFRS S1 and S2 not merely as reporting checklists, but as foundational capital-market infrastructure. This represents a structural shift from voluntary ESG 'storytelling' to investor-focused enterprise value reporting, where sustainability risks are priced directly into the cost of capital, as depicted in Table 02 below.The consolidation of Financial Reporting Standards and Sustainability Reporting Standards under the same issuing body is highly significant, suggesting a future where many concepts and terminologies will overlap or be directly applicable across both domains. This is a considerable advantage for Chartered Accountants (CAs). The journey toward global sustainability benchmarks mirrors the profession's successful transition from Indian GAAP to Ind AS. Having already mastered the complexities of global financial convergence and local 'carve-ins/outs,' Indian CAs are the most qualified architects to lead the integration of non-financial data into mainstream corporate reporting. The profession that delivered Ind AS will now deliver the next-generation sustainability standards. Let's delve into IFRS S1 and S2 briefly.Table 02 · How Legacy Frameworks Map to IFRS Sustainability StandardsFormer InitiativeRole in IFRS Sustainability StandardsISSB Standard(s) ImpactedTCFD RecommendationsProvided the four core pillars of disclosure structure.IFRS S1 and IFRS S2 (Fully Integrated)SASB StandardsProvided the industry-specific disclosure topics and metrics.IFRS S1 and IFRS S2 (Integrated as guidance)Integrated Reporting FrameworkProvided the concept of value creation and integrated thinking.IFRS S1 (Foundational Concept)CDSB FrameworkProvided technical guidance on climate and environmental disclosures.IFRS S1 and IFRS S2 (Consolidated Content)IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial InformationIt is the fundamental standard for all sustainability disclosures, comparable to IAS 1 / Ind AS 1 for Financial Reporting. Its primary objective is to assist reporting entities to disclose information regarding their sustainability-related risks and opportunities in a manner useful to the general user of financial statements, to assist them in their decision making.The standard also focuses on the "Enterprise Value" concept — i.e., factors affecting the entity's cash flows, access to finance, and/or cost of capital over the short/medium/long term are considered. Additionally, the coverage is not limited to climate; the entire ESG spectrum is included.The four core content areas: IFRS S1 requires disclosures over four core content areas. These areas are consistent with the recommendations of the Task Force on Climate-related Disclosures (TCFD), i.e., Governance, Strategy, Risk Management and Metrics & Targets.Key Principles and Requirements: IFRS S1 introduces several requirements to ensure usefulness and quality of disclosures. These are majorly consistent with IAS 1 / Ind AS 1.Connected Information: The user should be able to connect information in financial reports with the facts and figures presented in the sustainability report. For example, impairment of assets in a flood-prone area due to flood risk.Reporting Entity: The sustainability-related disclosures must pertain to the same entity/group to which the financial reports are referred. For example, a standalone sustainability report of a subsidiary can't be referred to in the Group's Financial Statements.Fair Presentation: The disclosure should provide a complete, neutral, and accurate depiction of the sustainability-related risks and opportunities.Reference to Other Standards: An entity is required to consider SASB Standards to identify industry-specific sustainability-related risks and opportunities and the corresponding metrics; and in case of unavailability of a standard, SASB / other standards are to be referred.IFRS S2 — Climate-related DisclosuresIFRS S2: Climate-related Disclosure is the first theme-based standard issued by the ISSB. It applies to one of the most discussed and debated topics of climate change. It effectively bridges the gap between the principles of IFRS S1 and detailed, mandatory disclosures about climate.The standard covers three categories of climate-related risk and opportunities:Climate-related Physical Risks: Risks related to the physical impacts of climate change.Acute: Event-driven (e.g., floods, wildfires).Chronic: Longer-term shifts (e.g., rising sea levels, sustained heat waves).Climate-related Transition Risks: Risks associated with the transition to a lower-carbon economy.Policy & Legal: New regulations (e.g., carbon pricing, emissions limits).Technology: Replacement of existing technologies (e.g., shift to electric vehicles).Market: Changes in supply and demand (e.g., consumer preference for low-carbon products).Reputation: Loss of reputation due to climate performance.Climate-related Opportunities: Potential benefits from adapting to or mitigating climate change (e.g., new product development, energy efficiency savings).Apart from the above, the standard also requires climate-specific disclosures structured around TCFD recommendations, i.e., Governance, Strategy, Risk Management and Metrics & Targets. However, it is also pertinent to note there are some critical requirements under Metrics & Targets in IFRS S2:Greenhouse Gas Emissions: Here, an entity is required to disclose its absolute GHG emissions for Scope 1, Scope 2 and Scope 3.Measurement: GHG emissions must be measured in accordance with the Greenhouse Gas Protocol Corporate Standard.Scope 1: Direct emissions from owned or controlled sources (e.g., company vehicles, owned facilities).Scope 2: Indirect emissions from the generation of purchased electricity, steam, heat, or cooling.Scope 3: All other indirect emissions in the value chain (e.g., purchased goods, business travel, use of sold products).Capital Deployment and Internal Carbon Pricing: IFRS S2 requires disclosures about the amount and percentage of assets susceptible to climate-related physical and vulnerable risk, and also those which can benefit from climate-related opportunities. Further, disclosures regarding the amount of capital expenditure towards climate-related risk and opportunities, and whether the company is using internal carbon pricing in its decision making, and how.Climate Targets: Disclosure regarding quantitative and qualitative climate-related targets (e.g., Net-Zero commitments, renewable energy goals) and the progress made toward achieving them. If a net GHG emissions target is set, the entity must also disclose the corresponding gross target.“The ICAI has already issued the Standard on Sustainability Assurance Engagements (SAE) 3000 and SAE 3410 (for GHG statements), providing the technical framework for practitioners to deliver these services.Alignment with India's SEBI BRSR CoreWhile IFRS standards provide a global benchmark, India has decided to come out with its own regulatory and reporting leadership by mandating one of the most descriptive and comprehensive frameworks in the global south. In 2021, SEBI replaced the narrative-based Business Responsibility Report (BRR) with BRSR. It was further evolved with the introduction of BRSR Core in 2023.SEBI's BRSR and BRSR Core align closely with IFRS S1 and S2. BRSR Core mandates assured KPIs on ESG metrics like GHG emissions (Scopes 1–3), water usage, and supply chain sustainability, mirroring IFRS S2's climate disclosures. While IFRS emphasizes investor-driven materiality tied to financial impacts, BRSR integrates broader stakeholder considerations but increasingly converges on enterprise value through value-chain reporting. This alignment facilitates Indian companies' compliance with global standards like EU CBAM, positioning CAs to advise on integrated reporting under both regimes. ICAI's SSA 5000 further supports assurance, ensuring BRSR disclosures are reliable and comparable.A key conceptual distinction runs through the global landscape. GRI follows impact materiality (double materiality): what the company does to the economy, environment and society. IFRS S1/S2 follow financial materiality (single materiality): what sustainability issues do to the company's cash flows, cost of capital and enterprise value.India sits at the perfect intersection. SEBI's BRSR began with a stakeholder lens (closer to GRI) but BRSR Core is rapidly converging toward financial materiality through assured KPIs and value-chain reporting, as depicted in Table 03. This dual approach gives Indian companies and CAs a natural advantage — we can speak both languages fluently when dealing with global investors and domestic regulators.The report is divided into three sections:Section A — General Disclosures: Details regarding size, location, and workforce.Section B — Management and Process Disclosures: Governance, leadership oversight, and policy implementation.Section C — Principle-wise Performance Disclosures: Granular reporting on indicators such as energy consumption, water withdrawal, and employee well-being.Table 03 · GRI vs. IFRS S1/S2 vs. SEBI BRSRFeatureGlobal Reporting Initiative (GRI)IFRS S1/S2 (ISSB)SEBI BRSR (India)Primary ObjectiveTo communicate organizational impact on society, economy, and environment.To provide information for assessing enterprise value and financial performance.To ensure regulatory compliance and responsible business conduct in the Indian market.Primary UsersMulti-stakeholder focus (investors, NGOs, employees, communities).Investors, lenders, and other financial creditors (capital providers).Regulators (SEBI/MCA) and a broad range of domestic stakeholders.Materiality LensImpact Materiality (double materiality: financial and societal impact).Financial Materiality (single materiality: impact on cash flows/risk).Compliance-based indicators / moving toward financial materiality via BRSR Core.Reporting ScopeOrganizations of any size, sector, or geography.Publicly listed entities and organizations raising capital.Top 1,000 listed companies by market capitalization in India.Assurance StatusHistorically voluntary; variable market practice.Integrated into audited annual reports (jurisdiction dependent).Mandatory reasonable assurance for BRSR Core KPIs (phased glide path).While the regulatory mandate begins with the top 1,000 listed companies, the ripple effects will reach far wider. Banks and large corporates are already demanding BRSR-aligned sustainability data from their suppliers and borrowers. Mid-sized companies seeking foreign funding, credit facilities, or participation in global value chains will face de-facto pressure to report under IFRS S1/S2 principles by 2027–28.For Small and Medium Practitioners (SMPs), this creates a significant new practice area: helping clients build basic sustainability data systems, conduct materiality assessments, and prepare for voluntary or bank-mandated disclosures. Early movers among SMPs will be able to offer high-value advisory services at a fraction of major multinational accounting firms' costs, expanding their relevance and revenue streams.The Global Convergence: How Legacy Standards Built the IFRS Foundation1 · The "DNA" Building Blocks (Legacy Frameworks) 2 · The "Engine Room" (Current IFRS Standards) 3 · The India Anchor & Local ContextTCFD — The Architecture4 pillars: Governance, Strategy, Risk, Metrics & Targets. Universal structure.SASB — The Industry Lens77 sector-specific standards. Financial-materiality focus.CDSB — The Environmental RigorIntegrating natural capital into mainstream financial reports.GRI — The Impact PartnerGlobal standard for impact materiality. Complementary "double materiality".→IFRS S1 — General RequirementsThe "general ledger" of ESG. All sustainability-related financial risks.IFRS S2 — Climate-related DisclosuresThe "climate specialist". Scope 1, 2, 3 & scenario analysis.→SEBI BRSR CoreQuantitative proof points. 9 key ESG attributes (GHG, energy, water, etc.).The CA's Role — Reasonable AssuranceGatekeepers verifying data meets SEBI & global IFRS baseline.Global Trade (CBAM)Non-compliance = export penalties.Cost of CapitalBetter IFRS/BRSR reporting = lower interest rates.Data IntegrityERP-integrated ESG data = audit-ready reports.“With the convergence of IFRS S1/S2 and India's BRSR framework, Chartered Accountants are uniquely positioned to lead this transition.Where do CAs fit in?The advent of these new sustainability standards and the integration of ESG data into mainstream reporting frameworks creates a multi-dimensional opportunity for Chartered Accountants. Chartered Accountants' pre-existing and thoroughly trained expertise in data integrity, audit aspects and methodology, and strategic financial and cost planning can be directly imported into the sustainability domain.Sustainability Assurance and the Audit of Non-Financial Information: This is the most immediate opportunity and a natural, almost inevitable, extension of a Chartered Accountant's traditional skill set. As sustainability data becomes mandatory and impacts the financial position, investors require independent assurance (audit) over the reported figures. The ICAI has already issued the Standard on Sustainability Assurance Engagements (SAE) 3000 and SAE 3410 (for GHG statements), providing the technical framework for practitioners to deliver these services.Preparation & Advisory Services: CAs can assist in preparation of the annual sustainability report (BRSR in India), advising on materiality, framework selection, etc. CAs can also assist in the prevention of greenwashing — i.e., when companies show themselves as more environmentally sound than they actually are.Corporate Strategy and Integration: These roles bridge the gap between finance, risk management, and sustainability, positioning the CA in a strategic leadership role. Mitigation of environment-based risks puts strain on the financial stability of companies. Usually demanding heavy upfront capital allocations, CAs can assist in the evaluation of Environmental-Risk-adjusted IRR/NPV and also in pricing of the end product by valuing the "Greenium" — amalgamating the concepts of carbon pricing in capital budgeting.Internal Controls over Sustainability Reporting (ICSR): Among the fundamental challenges in sustainability reporting is the reliability of underlying data. As non-financial data is often kept in fragmented form and is rarely linked to existing ERP applications, CAs can participate by providing some degree of assurance over completeness, accuracy and traceability of data.Sustainability reporting is no longer peripheral — it has become central to capital allocation, risk pricing, and regulatory compliance in global markets. With the convergence of IFRS S1/S2 and India's BRSR framework, Chartered Accountants are uniquely positioned to lead this transition.The same professionals who mastered Ind AS and built robust internal financial controls will now design internal controls over sustainability data (ICSR), assure GHG emissions and ESG metrics, price climate-adjusted risk into investment decisions, and advise boards on capital deployment that creates long-term enterprise value.The opportunity is clear: upskill in ESG assurance and advisory today, and Chartered Accountants will not only protect India Inc. against climate and regulatory risks — they will actively shape the future of responsible capital markets. The time to act is now.ReferencesIFRS S1 & IFRS S2 (Official Standards)IFRS S1 — General Requirements for Disclosure of Sustainability-related Financial Informationifrs.org/issued-standards/ifrs-sustainability-standards-navigatorIFRS S2 — Climate-related Disclosuresifrs.org/issued-standards/ifrs-sustainability-standards-navigatorSEBI — BRSR Format (Original 2021 Circular)Mandatory BRSR for top 1,000 listed companiessebi.gov.in/legal/circulars/may-2021/business-responsibility-and-sustainability-reporting-by-listed-entities_50096.htmlTCFD Overview (Official Website — Now part of ISSB)TCFD Knowledge Hubfsb-tcfd.orgSASB Standards (77 Industry-Specific Standards)Official SASB Standards Librarysasb.ifrs.org/standardsCDSB Framework for Reporting Environmental & Climate InformationCDSB Frameworkcdsb.net/resources/cdsb-publicationsGRI Universal Standards (2021 Update)GRI Standards Databaseglobalreporting.org/standardsThe Chartered Accountant · August 2026 · www.icai.orgAuthor may be reached at cagauravyadav@hotmail.com
Ep. 106 — Contract of Service vs Contract for Service
CA Journal
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Contract of Service vs Contract for ServiceThe recent judgement of Bombay High Court in CIT vs Dr Balabhai Nanavati Hospital (2025) brings back into focus one of the longest-standing disputes in the healthcare sector: whether doctors in hospitals should be treated as “employees” or as “independent consultants”? This distinction is important because it impacts the TDS section. “Salary payments” fall u/s 192 of the Income-tax Act, 1961 / section 392 of the Income-tax Act, 2025, while “professional fees” fall u/s 194J of the Income-tax Act, 1961 / section 393(1) of the Income-tax Act, 2025. TDS officers check whether hospitals are wrongly treating the doctors as “consultants”. This has resulted in TDS litigation. The controversy is relevant not only for the healthcare sector but also for educational institutions. This is demonstrated by the latest decision in Brilliant Study Centre Pvt Ltd vs ITO (2026). If TDS u/s 194J of the Income-tax Act, 1961 / section 393(1) of the Income-tax Act, 2025 is applied by the payer, then it is important to demonstrate that the individual (payee) is a “consultant” (non-employee) in both ‘form’ and ‘substance’. The article discusses these issues in detail, including for the entertainment & media industry. The article also discusses the expectations from practising Chartered Accountants in relation to the “Tax Audit Report”.IntroductionThe distinction between a “contract of service” (employment) and a “contract for service” (independent professional arrangement) has been one of the most debated issues in the income-tax law.These phrases differ only by a single word (“of” vs “for”). However, this small difference is not mere wordplay; it determines the character of the income and the related TDS obligations.Healthcare IndustryThis issue is relevant for the healthcare industry where Senior Doctors examine patients in private hospitals for part of the day and practice independently at their own clinics for the balance day.In this connection, a question arises:Are these doctors “employees” of the hospital?Or are they “independent consultants” to the hospital?Why the distinction mattersThe classification of the doctor affects the TDS rates:If a doctor is treated as an “employee”, TDS must be deducted u/s 192 of the Income-tax Act, 1961 / section 392 of the Income-tax Act, 2025. TDS on salary is to be applied based on the “average rate of income-tax” computed on the basis of the “rates in force for the concerned financial year”.On the other hand, if the doctor is treated as a “consultant”, then TDS is deductible u/s 194J of the Income-tax Act, 1961 / section 393(1) of the Income-tax Act, 2025 at the rate of 10%.Incorrect classification of the doctor may lead to demands on the hospital for short-deduction of tax, interest and penalty.CBDT Instructions to its field officersThe issue has been the subject matter of heightened scrutiny of hospitals by the “TDS Wing” of the Income-Tax Department. This is evident from the following:CBDT Action Plan for 2014-15The action plan states as follows:“In the cases of professionals, e.g., doctors etc., salary payments are misclassified as professional payments and tax is deducted by applying lower rates. This aspect needs to be examined.”The Publication (July 2019) of the Income-tax Department titled “Techniques of Investigation for Assessment” discusses the controversy in detail.The ‘Nanavati Hospital’ CaseOne such hospital under scrutiny was Nanavati Hospital, Mumbai.In its TDS assessment, the Revenue alleged as follows:Honorary Doctors should be treated as “employees”.TDS u/s 192 of the Income-tax Act, 1961 ought to have been applied by the hospital instead of section 194J of the Income-tax Act, 1961.However, the Bombay High Court [CIT v. Dr Balabhai Nanavati Hospital (2025)] rejected the Revenue’s position. The High Court held as follows:There was no “employer-employee” relationship between the hospital & the honorary doctors.Payments to doctors represented “professional fees”, not “salary”.Hence, TDS u/s 194J of the Income-tax Act, 1961 was correctly applied by the hospital.Judicial Tests: Whether doctors are “consultant” or “employee” of hospitals?The Bombay High Court applied the following yardsticks to hold that the doctors were “independent professionals”:Variable remuneration: The doctor’s income depended on actual consultations or procedures performed — not on a “fixed monthly salary”.Revenue-sharing model: The hospital retained a percentage of billing to cover infrastructure, facilities and administrative support.Professional autonomy: Doctors were free to practise at other hospitals or run their own clinics.No employee benefits: Hospitals did not provide PF, ESIC or perquisites normally associated with employment.Flexible schedule: Doctors were not bound by fixed working hours; their availability depended on patient requirements.No control: Hospitals did not exercise “real supervisory control” in respect of the work entrusted to the doctors.Disclosure in income-tax return of doctors: Doctors disclosed their income under the head “Profits and Gains of Business or Profession”, not “Salaries”.What should hospitals do?Considering the TDS disputes, it is advisable for the hospitals to ensure the following:The hospitals should review contractual arrangements with doctors.The hospitals should align its TDS position with the substance of the relationship with the doctors — and not merely with the nomenclature of the agreement with the doctors.The hospitals should maintain factual evidence of the “judicial tests” discussed above.A proactive approach can reduce litigation risk for the hospitals.Is the TDS controversy restricted to hospitals?The short answer is “No”. The reasons are as under:Briefly speaking, whilst the doctor is subject to TDS rate of 10% u/s 194J of the Income-tax Act, 1961 / section 393(1) of the Income-tax Act, 2025, the TDS rate can be reduced to 2% if the “consultant” does not provide “professional services” but, inter alia, provides “management services, technical services, and consultancy services”.Further, if an individual treats himself or herself as a “consultant” as opposed to an “employee”, then he or she can claim a tax deduction for expenses, presumptive taxation et al. As opposed to this, a “salaried employee” hardly gets any tax deductions.Hence, the general temptation may be to “call” people as “consultants / freelancers / contractor” and to treat their remuneration as “non-salary”.However, there is a need for caution in light of below discussion.Educational InstitutionsThe publication (July 2019) of the Income-Tax Department titled “Techniques of Investigation for Assessment” highlights the advance ruling of Max Muller (2004) for payments by educational institutes to honorary part-time teachers.In Max Mueller, an “educational institute” (EI) engaged “part-time teachers” on a “contract basis”. EI controlled the teachers as under:EI prescribed the syllabus.EI fixed the teaching period.EI fixed responsibility on teachers for completion of their assignment to the satisfaction of EI.EI required the teachers to be punctual and regular in their duty.EI mandated the teachers not to be absent without its permission.EI reviewed the work of teachers.In this backdrop, the “Authority for Advance Rulings” held that the teachers were “employees” of EI. This was in spite of the following facts:The agreement described the teachers as a “part-time casual honorary teacher”.The agreement provided that the teachers would not have the status of an “employee” and shall not be entitled to avail the benefits of the “regular employees”.The teachers were paid “honorarium” by EI for each semester.The teachers were entitled to work simultaneously for other establishments, while working with EI.However, in Brilliant Study Centre Pvt Ltd vs ITO (2026), the Cochin Tribunal held that the teachers were not “employees”. In this decision, the teachers were initially treated as “salaried employees” but were shifted to “professional category” based on market considerations. There was only a verbal agreement between the teachers and the coaching centre. The teachers were paid on hourly basis and had to take classes for 5 to 7 hours daily. During this time, they were not allowed to take classes in any other coaching centre. Further, the teachers were supposed to be available for extra lectures. An attendance register was maintained. The teachers were free to teach in their own way subject to curriculum. The coaching centre did not exercise any control, intervention or direction over the exercise of duties by the teachers. The teachers were paid monthly and promised a yearly increase in the remuneration of 10%. The teachers were supposed to intimate their leave, one day prior to the date of leave. The coaching centre provided medical insurance and transport facility to the teachers. However, the teachers were not entitled to the benefits of PF, gratuity, bonus, medical reimbursement, leave encashment etc. The teachers filed their income-tax return disclosing the remuneration as “professional fees” (and not as “salary”). These returns were accepted by the Revenue. In this backdrop, the Tribunal rejected the Revenue’s allegation that the teachers were “employees” of the coaching centre. The Tribunal held that the teachers did not cease to be “consultants” merely because the coaching centre had exercised some degree of control over the administrative and logistical functioning of the teachers.Thus, there exists contrary jurisprudence in the educational sector.Entertainment & Media IndustryTDS litigation has also arisen in the entertainment sector on account of unique arrangements with artists etc.In ITO vs Entertainment Network (I) Ltd (2017), it was held that the “radio jockeys” (RJs) were earning “professional fees” (and not “salary”) from a FM Radio broadcasting company (FMR). This was on account of the following facts:RJs were not required to provide services in compliance with the internal codes of FMR, unlike in the case of its employees.RJs were not required to report as per “duty hours for the employees”.RJs were not required to sign the muster.RJs were not governed by the leave rules of FMR.RJs were incentivised based on their popularity.RJs did not have any “probation period”.RJs were solely responsible for their acts.There was a full indemnification by RJs for injuries to FMR.FMR’s liability was limited for any damages.RJ’s compensation was not broken into basic allowances etc.RJs were not entitled to provident fund, gratuity, retirement benefits etc.The agreements with RJs were for a specific period and FMR was not bound to renew the same.RJs were free to take assignments from any company (except with any other radio broadcasting company). The individuals were not bound to act solely as RJs.RJs had shown their remuneration as “professional fees” in their respective returns, which had been accepted as such by the Revenue.RJs were liable to pay service tax.Post this decision, the publication (July 2019) of the Income-Tax Department titled “Techniques of Investigation for Assessment” (see page 333) raised an alarm for the film fraternity. This was because of the Tax Tribunal’s decision in Red Chillies Entertainment Pvt Ltd vs ACIT (2025).In this case, ‘retainership fees’ were paid by a film production company (FPC) to an individual who was appointed as a “production manager” (PM). The payer classified the payment as a “consultancy fee” and applied TDS u/s 194J of the Income-tax Act, 1961. However, the Income-Tax Department alleged that there was an “employer-employee relationship”. The Tribunal sided with the Revenue. This was due to the following facts:The individual was designated as a “production manager”.PM was required to perform the duties that were assigned to him by FPC from time to time.The remuneration was payable monthly and was of a ‘fixed amount’ (like a “salary”).PM was provided with a company car and mobile phone.PM was required to attend office daily to perform his duties as may be assigned to him by FPC from time to time.PM was provided with leaves of 30 days in a year. In other words, PM was required to attend office mandatorily for remaining days of the year.There was a clause in the contract for “termination of employment”.Identical contract was signed with other individuals who were designated as “production executive” and “production assistant”.The Tribunal was not influenced by the fact that PM was not paid PF, ESI, Gratuity & Bonus.Thus, there exists contrary jurisprudence in the entertainment & media industry.Tax Audit Report1The Tax Auditor is required to report the following:“Whether the assessee is required to deduct or collect tax……, if yes please furnish:Column 1: Tax deduction and collection Account Number (TAN)Column 2: SectionColumn 3: Nature of paymentColumn 4: Total amount of payment or receipt of the nature specified in column (3)Column 5: Total amount on which tax was required to be deducted or collected out of (4)Column 6: Total amount on which tax was deducted or collected at specified rate out of (5)Column 7: Amount of tax deducted or collected out of (6)Column 8: Total amount on which tax was deducted or collected at less than specified rate out of (7)Column 9: Amount of tax deducted or collected on (8)Column 10: Amount of tax deducted or collected not deposited to the credit of the Central Government out of (6) and (8)”.For this article, column (8) is relevant. In this connection, The Guidance Note on Tax Audit issued by The Institute of Chartered Accountants of India (2025 edition, para 66.11) states as follows:“……column (8) requires furnishing of the total amount, out of the amount deductible or collectible as mentioned in column (5), at which the tax was deducted or collected at the rate less than the specified rate out of Column (7). The lesser deduction is required to be reported in this clause. This will include deduction at a lower rate than what is prescribed, application of wrong section for deduction of tax at source, etc.…… In case, there is difference of opinion with regard to rate of deduction or applicability of a particular section, the auditor may appropriately report the difference of opinion…… giving both the views”.Consequently, if the Tax Auditor finds that TDS u/s 194J of the Income-tax Act, 1961 / section 393(1) of the Income-tax Act, 2025 has been applied (2% or 10%), but the Chartered Accountant believes that the TDS u/s 192 of the Income-tax Act, 1961 / section 392 of the Income-tax Act, 2025 ought to have been applied, then the aforesaid guidance of The Institute of Chartered Accountants of India would be relevant (presuming that the “Effective TDS rate on Salaries” is higher than “TDS rate for Consultants”).In light of the above, the Tax Auditor is required to evaluate on whether the individual is in “employment” or is a “consultant”. Now, can the nature of the relationship be determined solely based on the contract or agreement?In Vijay Mariappan Austin Prakash vs ACIT (2026) an individual assessee (VM) was a “salaried employee” with a company, ZBL, till 30.09.2020. After termination of employment, VM was appointed by ZB as a “consultant”. For this purpose, a “consultancy agreement” was entered into between VM and ZBL from 01.10.2020 to 30.09.2022. The nature of services provided by VM as an “employee on salary basis” and VM’s “services as per the consultancy agreement” remain the same. Hence, the Revenue alleged that VM had changed the source of income from “salary” to “consultancy fees” w.e.f 01.10.2020, to avoid paying tax in India. However, the Tribunal did not accept Revenue’s contentions. It held as under:“…observations of……AO do not have any merit due to the fact that change of the employment to consultant is with regard to the agreement between the concerned parties. However, we find from the records, assessee has been appointed as a consultant based on the agreement for the period from 01.10.2020 to 30.09.2022”.With due respect, the agreement, by itself, may not be determinative of the nature of the relationship (“employment” or “independent professional engagement”). Ideally, the Tax Auditor must go beyond the contract (form). The following questions can be asked by the Tax Auditor to the company (payer):Is the individual acting as an “independent contractor” on a principal-to-principal basis?Is there a “master-servant relationship”?Who controls the “work to be done” by the individual?Who controls the “manner in which such work should be done” by the individual?Who determines the “place and time of the performance of the services”?Who provides the “tools and other resources” to the individual, for the performance of the services?To what extent does the individual have “professional autonomy”?Are the “intricacies of the services” to be performed by an individual, “specified in advance”? Or are the individual assigned duties that are not feasible to be defined in specific terms in advance?Does the individual have “formal designation”?Is the remuneration “fixed” or “variable”? Does the “monthly remuneration” vary (increase or decrease) depending upon the “quantum of work”?Is the individual entitled to “social security benefits”?Does the individual get the “perquisites” (eg, company car or mobile) that are normally associated with an employment?Does the individual have to undergo “annual or bi-annual evaluation of performance”?Is the individual entitled to “annual increments and bonus”?Is the individual required to attend office on a “daily basis”?Does the individual have a “flexible schedule”? Is the individual bound by a “fixed number of working hours” in a day?Is the individual, “full-time” or “part-time”?Is the individual entitled to “annual leaves / national holidays”?Can the individual be absent “without permission”?Can “disciplinary sanctions” be imposed on the individual?Is there a “right to suspend or dismiss” the individual?Who bears the “risk and rewards” of the services? Is the individual “liable for damages”?What stand has the individual taken in the ITR (“Income from Salary” or “Profits and Gains from Business or Profession”)?Is the individual liable to pay GST?Does “Labour Laws” apply to the individual?These are indicative questions which may vary depending upon the industry.“ The hospitals should align its TDS position with the substance of the relationship with the doctors — and not merely with the nomenclature of the agreement with the doctors. ”ConclusionThere is no set formula to decide whether a relationship is a “contract of service” (employment) or a “contract for service” (independent professional engagement). Everything turns on facts. The contract has to be read as a whole. The circumstances have to be looked at in totality. The “real relationship” matters more than the “label” used in the agreement. Lastly, but equally importantly, every organisation & individual must ensure that its arrangements & tax position pass the “basic smell test”.ReferencesCIT vs Dr Balabhai Nanavati Hospital (2025) 178 taxmann.com 437 (Bombay) / IT Appeal Nos 2166, 2448, 2451, 2612, 2758 of 2018 and 605 of 2020: https://indiankanoon.org/doc/158154550/Brilliant Study Centre Pvt Ltd vs ITO (2026) 187 taxmann.com 816 (Cochin-Tribunal) / ITA No 545/Coch/2026: https://indiankanoon.org/doc/114480815/CBDT Action Plan for 2014-15: https://www.scribd.com/document/1060341438/2014-15Publication (July 2019) of the Income-tax Department titled “Techniques of Investigation for Assessment” (pages 332-333): https://www.scribd.com/document/811247308/Techniques-of-Investigation-for-Assessment-Vol1Max Muller (2004) 138 Taxman 113 (AAR) / AAR No 597 of 2002: https://indiankanoon.org/doc/830507/ITO vs Entertainment Network (I) Ltd (2017) 88 taxmann.com 843 (Mumbai-Tribunal) / IT Appeal Nos 1352 & 5227 (Mum) of 2014: https://indiankanoon.org/doc/140431337/Red Chillies Entertainment Pvt Ltd vs ACIT (2025) 181 taxmann.com 282 / IT Appeal Nos. 6655, 6656 & 6657 (Mum) of 2014 and 92 & 93 (Mum) of 2015: https://indiankanoon.org/doc/57040157/The Guidance Note on Tax Audit issued by The Institute of Chartered Accountants of India (2025 edition): https://resource.cdn.icai.org/87317dtc-aps1808gn-tax-audit2025.pdfVijay Mariappan Austin Prakash vs ACIT (2026) 182 taxmann.com 285 (Visakhapatnam-Tribunal) / IT Appeal No.89 (VIZ) of 2025: https://itat.gov.in/public/files/upload/1767073619-DkKP5F-1-TO.pdf1 See Form 3CD of Income-Tax Rules, 1962 (similar to Form 26 of Income-Tax Rules, 2026).Author may be reached at modinileshrajkumar@mail.ca.in and eboard@icai.in
August 2026 · Vol. 75 · No. 02
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