The Government of India introduced Section 94A of the Income Tax Act in 2011 to take action against taxpayers if an appropriate exchange of tax information does not take place. This Section of ITA includes provisions that curb tax payment avoidance.
Read on to learn about the crucial details of Section 94A of the Income Tax Act.
The Indian government has signed Tax Information Exchange Agreements with many countries to gain accurate information about the funds held by Indian residents abroad. However, a few countries refused to cooperate with respect to sharing tax-related information.
With the help of Section 94A of ITA, the Government of India blacklists those foreign tax jurisdictions which have an improper and ineffective system of exchanging tax-related information.
This Section empowers GOI to avoid financial transactions with the countries that refuse to help the Indian government access tax-related information about Indians living on their soil.
Here are the essential provisions of Section 94A of ITA.
Detailed below are the notable features of Section 94A of ITA:
Payments made to individuals based in a notified area are eligible for tax deduction at any of the following rates:
Individuals should maintain necessary documents providing accurate information if they wish to avail the deductions mentioned above.
If an Indian assessee carries out any financial transaction with a person located in a Notified Jurisdictional Area, the consequences are as follows.:
The transaction is considered an international transaction
More importantly, Section 94A(6) has described a person in an NJA as —
To sum up, Section 94A of Income Tax Act is a crucial legal tool that can help the Government of India to curb the circulation of black money. This law enables the government to mark countries refusing to share tax information about Indians living abroad as Notified Jurisdictional Areas. If used effectively, Section 94A of ITA can curb people’s tendency to avoid the payment of taxes.
The concept of Notified Jurisdictional Area came into being with Section 94A of the Income Tax Act. It enables India to notify countries that refuse to help India access tax-related information as NJAs and cease financial transactions with them. To date, only Cyprus has been notified as NJA. But it was rescinded in 2016.
In India, Transfer Pricing Law is applicable for international and domestic transactions that fall above a certain threshold with respect to deal value. Section(s) 92A-F and relevant Rule(s) 10A-E of the Income Tax Rules of 1962 introduced transfer pricing law.
According to income tax laws, total earnings that are subject to taxation are known as taxable income. Note that certain incomes are not taxable. These are called exempt income. Examples of exempt income include interest received through PPF and agricultural means.
The Government of India has entered into a bilateral treaty called Double Taxation Avoidance Agreement with more than 150 countries to provide tax relief to India’s citizens and residents. Double taxation takes place when GOI imposes tax twice on the same income. It happens when an individual’s income is accrued, i.e., received in more than one country.
Before you go…
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.