CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 195A — Income Payable Net of Tax (Grossing Up) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A computation rule; lightly litigated.
Finance Act, 2026: No amendment.
Mechanism: Where tax on income is borne by the payer (net-of-tax arrangement), the income is grossed up to the figure that, after deduction at the rates in force, yields the agreed net amount, and tax is deducted on the grossed-up sum.
Litigation profile: Thin. A mechanical grossing-up rule — the candour rule applies.
A. SECTION COMMENTARY
Section 195A provides the grossing-up rule. Where, under an agreement or arrangement, the tax chargeable on any income is to be borne by the person by whom the income is payable (a 'net of tax' arrangement), then, for the purpose of deduction of tax under the foregoing provisions of the Chapter, the income is to be increased to such amount as would, after deduction of tax at the rates in force, yield the net amount payable under the agreement. In short, a net-of-tax payment must be 'grossed up' so that tax is deducted on the gross equivalent, not on the net sum.
Why grossing up is necessary
Where a payer agrees to bear the payee's tax, the tax so borne is itself a benefit — an additional income of the payee (the principle that an obligation of the assessee discharged by another is income). Section 195A gives statutory effect to that logic for deduction purposes by reconstructing the gross figure on which tax must be withheld. It is most often encountered in cross-border payments under section 195 where the Indian payer contracts to pay the non-resident 'free of Indian tax', and in similar net-of-tax salary or interest arrangements.
A mechanical computation rule — candour
Section 195A is a computation rule and is rarely litigated on its own terms; the disputes are about the underlying chargeability or the rate, not about the grossing-up arithmetic. In candour, there is no body of section 195A merits authority; the cognate principle that tax borne by another is income is settled (Emil Webber).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
195A. In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.
C. AUTHORITIES
Candour rule observed: section 195A is a computation rule with no merits authority of its own. The cognate principle (tax borne by another is income) is offered.
Cognate principle
Emil Webber v. CIT (1993) 200 ITR 483 (SC)
Principle: An obligation of the assessee (here, his tax) discharged by another person is a benefit accruing to him and is itself income; tax borne on his behalf is taxable in his hands.
Use: The substantive basis for grossing-up under section 195A — the borne tax is income, so deduction must be on the grossed-up figure.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of an incorrect (un-grossed) deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 195A — Income Payable Net of Tax (Grossing Up) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A computation rule; lightly litigated.
Finance Act, 2026: No amendment.
Mechanism: Where tax on income is borne by the payer (net-of-tax arrangement), the income is grossed up to the figure that, after deduction at the rates in force, yields the agreed net amount, and tax is deducted on the grossed-up sum.
Litigation profile: Thin. A mechanical grossing-up rule — the candour rule applies.
A. SECTION COMMENTARY
Section 195A provides the grossing-up rule. Where, under an agreement or arrangement, the tax chargeable on any income is to be borne by the person by whom the income is payable (a 'net of tax' arrangement), then, for the purpose of deduction of tax under the foregoing provisions of the Chapter, the income is to be increased to such amount as would, after deduction of tax at the rates in force, yield the net amount payable under the agreement. In short, a net-of-tax payment must be 'grossed up' so that tax is deducted on the gross equivalent, not on the net sum.
Why grossing up is necessary
Where a payer agrees to bear the payee's tax, the tax so borne is itself a benefit — an additional income of the payee (the principle that an obligation of the assessee discharged by another is income). Section 195A gives statutory effect to that logic for deduction purposes by reconstructing the gross figure on which tax must be withheld. It is most often encountered in cross-border payments under section 195 where the Indian payer contracts to pay the non-resident 'free of Indian tax', and in similar net-of-tax salary or interest arrangements.
A mechanical computation rule — candour
Section 195A is a computation rule and is rarely litigated on its own terms; the disputes are about the underlying chargeability or the rate, not about the grossing-up arithmetic. In candour, there is no body of section 195A merits authority; the cognate principle that tax borne by another is income is settled (Emil Webber).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
195A. In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.
C. AUTHORITIES
Candour rule observed: section 195A is a computation rule with no merits authority of its own. The cognate principle (tax borne by another is income) is offered.
Cognate principle
Emil Webber v. CIT (1993) 200 ITR 483 (SC)
Principle: An obligation of the assessee (here, his tax) discharged by another person is a benefit accruing to him and is itself income; tax borne on his behalf is taxable in his hands.
Use: The substantive basis for grossing-up under section 195A — the borne tax is income, so deduction must be on the grossed-up figure.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of an incorrect (un-grossed) deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.