Section 94A allows the Central Government, having regard to the lack of effective exchange of information with a country or territory outside India, to notify it as a notified jurisdictional area. Where an assessee enters into a transaction with a person located in that area, all parties are deemed to be associated enterprises under s. 92A, and the transaction is deemed to be an international transaction under s. 92B. Sections 92, 92A, 92B, 92C (except the second proviso to sub-section (2)), 92CA, 92CB, 92D, 92E and 92F then apply.
A person located in such an area includes a resident of it, a non-individual established in it, and a permanent establishment there of any other person.
Operative consequences
No deduction is allowed for a payment to a financial institution in the area unless the assessee authorises the Board or another income-tax authority to seek information from it; and no other expenditure or allowance, including depreciation, from a transaction with a person there is allowed unless prescribed documents are kept and information furnished (sub-section (3)).
A sum received or credited from such a person is deemed income if its source, in that person's or the beneficial owner's hands, is not explained to the Assessing Officer's satisfaction (sub-section (4)).
Tax deductible under Chapter XVII-B on sums payable to such a person is deducted at the highest of the rate in force, the rate in the Act, and thirty per cent (sub-section (5)).
The tolerance band in the second proviso to s. 92C(2) is not available for these transactions.
Status
Operative for assessment year 2026-27; its consequences apply only while an area stands notified. The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 176.
Case Laws & Commentary
SECTION 94A — SPECIAL MEASURES IN RESPECT OF TRANSACTIONS WITH PERSONS LOCATED IN NOTIFIED JURISDICTIONAL AREA
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 94A, inserted by the Finance Act, 2011 (w.e.f. 1-6-2011), is a counter-measure against non-cooperative jurisdictions. It empowers the Central Government to notify any country or territory (outside India) as a 'notified jurisdictional area' (NJA) having regard to the lack of effective exchange of information. Once an area is notified, a battery of disincentives applies to transactions with persons located there: (i) such transactions are deemed to be between associated enterprises and treated as international transactions, attracting the full transfer-pricing machinery (Chapter X) with stricter documentation; (ii) deductions for payments to financial institutions/expenditure are allowed only on stringent conditions; (iii) sums received from a person located in an NJA are deemed income unless the source is satisfactorily explained; and (iv) tax is deductible at source at the higher of the applicable rate or 30%.
The only country notified to date has been Cyprus (Notification No. 86/2013 dated 1-11-2013), which was rescinded in 2017 after Cyprus and India renegotiated the exchange-of-information framework and revised the treaty. The constitutional validity of s.94A(1) and of the Cyprus notification was comprehensively upheld by the Madras High Court in T. Rajkumar v. Union of India.
A.2 Sub-section / clause taxonomy
Sub-section (1): The Central Government may, having regard to the lack of effective exchange of information with any country or territory outside India, notify it as a 'notified jurisdictional area' in relation to transactions entered into by any assessee.
Sub-section (2): If an assessee enters into a transaction where one of the parties is a person located in an NJA, all the parties to the transaction shall be deemed to be associated enterprises and the transaction deemed an international transaction, attracting the transfer-pricing provisions (Chapter X).
Sub-section (3): No deduction in respect of any payment made to a financial institution located in an NJA is allowed unless the assessee furnishes an authorisation permitting the tax authority to seek relevant information from that institution; and no deduction for any other expenditure/allowance (including depreciation) arising from a transaction with a person located in an NJA is allowed unless the assessee maintains and furnishes the prescribed documents/information.
Sub-section (4): Where any sum is received from a person located in an NJA, and the assessee does not satisfactorily explain the source of such sum in the hands of that person (or the beneficial owner), the sum is deemed to be the income of the assessee.
Sub-section (5): Any payment to a person located in an NJA, on which tax is deductible, attracts TDS at the higher of the rates in force or 30%.
Sub-section (6): Defines 'person located in a notified jurisdictional area', 'transaction' and related terms.
A.3 Core doctrinal themes
Theme (1) — Deeming AE status and TP applicability: the most far-reaching consequence — any transaction with an NJA-located person is automatically within the TP net (deemed AE / international transaction), irrespective of any actual relationship.
Theme (2) — Disincentives and reverse burden: enhanced TDS (30% floor), denial of deductions absent stringent disclosure, and a deeming of unexplained receipts as income — designed to make NJA dealings costly and transparent.
Theme (3) — Constitutional validity upheld: T. Rajkumar (Madras HC) upheld s.94A(1) and the Cyprus notification as a valid exercise of delegated power and a legitimate response to non-exchange of information.
Theme (4) — Treaty interface: where a treaty exists, the NJA measures operate as a domestic counter-measure; the Cyprus episode shows the mechanism's diplomatic leverage (the notification was rescinded after the treaty/EOI was renegotiated).
FA 2011 (w.e.f. 1-6-2011): Section 94A inserted as the NJA counter-measure.
Notification No. 86/2013 (1-11-2013): Cyprus notified as the first (and only) NJA.
2016 — T. Rajkumar (Madras HC): Constitutional validity of s.94A(1) and the Cyprus notification upheld.
2017 (Notification rescinding Cyprus NJA, with retrospective effect from 1-11-2013): Cyprus de-notified after renegotiation of the India-Cyprus treaty and EOI framework.
FA 2026: No amendment to s.94A; the NJA mechanism remains available though no area is currently notified.
A.5 CA practitioner pointers
(1) Before transacting with any offshore counterparty, check whether its jurisdiction is currently a notified NJA — if so, the full TP machinery, 30% TDS floor, and deduction-denial/disclosure rules apply.
(2) For any (historic Cyprus) NJA period, ensure the s.94A(3) authorisation/documentation conditions were met to preserve deductions, and be ready to explain the source of NJA receipts (s.94A(4)).
(3) Apply the 30% TDS floor (s.94A(5)) on payments to NJA-located persons during any notified period, overriding lower treaty/Act rates.
B. FA 2026 IMPACT NOTE
Section 94A is NOT amended by the Finance Act, 2026. The NJA counter-measure framework continues for AY 2026-27 onward; whether it bites in any year depends on whether a jurisdiction stands notified.
As Cyprus was de-notified with retrospective effect from 1-11-2013, there is currently no subsisting NJA notification; the section remains a standby anti-avoidance tool. T. Rajkumar continues to govern its validity.
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : Constitutional validity of s.94A and the NJA notification
1. T. Rajkumar v. Union of India (2016) 386 ITR 685 / 68 taxmann.com 182 (Madras)
Facts: A batch of writ petitions challenged the constitutional validity of s.94A(1) and of CBDT Notification No. 86/2013 dated 1-11-2013 notifying Cyprus as an NJA, contending that the section was excessively delegated, that it overrode the India-Cyprus DTAA, and that the consequences (30% TDS, deduction denial, deeming of receipts) were arbitrary.
Issue: Whether s.94A(1) is a valid piece of delegated legislation, whether the Cyprus notification was validly issued, and whether the NJA consequences are constitutionally permissible notwithstanding the DTAA.
Held: The Madras High Court upheld the constitutional validity of s.94A(1), the Cyprus notification and the associated press release. It held that where the purpose of a treaty is defeated by a contracting State's failure to exchange information, the conditions warrant the exercise of the delegated power under s.94A; the consequences (including the 30% TDS floor) are a legitimate counter-measure and not arbitrary. The treaty does not disable Parliament/the Government from enacting and applying such anti-avoidance counter-measures.
Ratio: Section 94A is constitutionally valid; the power to notify an NJA for lack of effective information-exchange is validly delegated, and the NJA consequences are a legitimate, non-arbitrary anti-avoidance response that can operate alongside a DTAA.
Relevance: The leading (and principal) authority on s.94A; governs any challenge to the section or to a future NJA notification.
D. PRACTITIONER'S NOTE
NJA compliance map (when a notification subsists): (1) treat the NJA counterparty as a deemed AE — full Chapter X documentation and Form 3CEB; (2) satisfy s.94A(3) conditions (bank authorisation; prescribed documents) to preserve deductions; (3) deduct TDS at the 30% floor (s.94A(5)); (4) be prepared to explain the source of any NJA receipt (s.94A(4)).
Candid note: the section's practical footprint has been confined to the Cyprus episode (now de-notified). For current advice, confirm the live notification status; for legacy Cyprus-period assessments, T. Rajkumar settles validity, and the disputes are about compliance with the s.94A(3) conditions.
E. SOURCES & CITATIONS
Caveat: This material is treatise-style commentary for practitioners and academic use. It is not legal opinion. Verify the current text, the latest CBDT circulars/notifications and the most recent appellate position before relying on any proposition in assessment, audit (Form 3CEB) or litigation.
Function in the statutory architecture
Section 94A allows the Central Government, having regard to the lack of effective exchange of information with a country or territory outside India, to notify it as a notified jurisdictional area. Where an assessee enters into a transaction with a person located in that area, all parties are deemed to be associated enterprises under s. 92A, and the transaction is deemed to be an international transaction under s. 92B. Sections 92, 92A, 92B, 92C (except the second proviso to sub-section (2)), 92CA, 92CB, 92D, 92E and 92F then apply.
A person located in such an area includes a resident of it, a non-individual established in it, and a permanent establishment there of any other person.
Operative consequences
Status
Operative for assessment year 2026-27; its consequences apply only while an area stands notified. The Finance Act, 2026 does not amend this section.
The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act provision is s. 176.
Case Laws & Commentary
SECTION 94A — SPECIAL MEASURES IN RESPECT OF TRANSACTIONS WITH PERSONS LOCATED IN NOTIFIED JURISDICTIONAL AREA
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 94A, inserted by the Finance Act, 2011 (w.e.f. 1-6-2011), is a counter-measure against non-cooperative jurisdictions. It empowers the Central Government to notify any country or territory (outside India) as a 'notified jurisdictional area' (NJA) having regard to the lack of effective exchange of information. Once an area is notified, a battery of disincentives applies to transactions with persons located there: (i) such transactions are deemed to be between associated enterprises and treated as international transactions, attracting the full transfer-pricing machinery (Chapter X) with stricter documentation; (ii) deductions for payments to financial institutions/expenditure are allowed only on stringent conditions; (iii) sums received from a person located in an NJA are deemed income unless the source is satisfactorily explained; and (iv) tax is deductible at source at the higher of the applicable rate or 30%.
The only country notified to date has been Cyprus (Notification No. 86/2013 dated 1-11-2013), which was rescinded in 2017 after Cyprus and India renegotiated the exchange-of-information framework and revised the treaty. The constitutional validity of s.94A(1) and of the Cyprus notification was comprehensively upheld by the Madras High Court in T. Rajkumar v. Union of India.
A.2 Sub-section / clause taxonomy
Sub-section (1): The Central Government may, having regard to the lack of effective exchange of information with any country or territory outside India, notify it as a 'notified jurisdictional area' in relation to transactions entered into by any assessee.
Sub-section (2): If an assessee enters into a transaction where one of the parties is a person located in an NJA, all the parties to the transaction shall be deemed to be associated enterprises and the transaction deemed an international transaction, attracting the transfer-pricing provisions (Chapter X).
Sub-section (3): No deduction in respect of any payment made to a financial institution located in an NJA is allowed unless the assessee furnishes an authorisation permitting the tax authority to seek relevant information from that institution; and no deduction for any other expenditure/allowance (including depreciation) arising from a transaction with a person located in an NJA is allowed unless the assessee maintains and furnishes the prescribed documents/information.
Sub-section (4): Where any sum is received from a person located in an NJA, and the assessee does not satisfactorily explain the source of such sum in the hands of that person (or the beneficial owner), the sum is deemed to be the income of the assessee.
Sub-section (5): Any payment to a person located in an NJA, on which tax is deductible, attracts TDS at the higher of the rates in force or 30%.
Sub-section (6): Defines 'person located in a notified jurisdictional area', 'transaction' and related terms.
A.3 Core doctrinal themes
Theme (1) — Deeming AE status and TP applicability: the most far-reaching consequence — any transaction with an NJA-located person is automatically within the TP net (deemed AE / international transaction), irrespective of any actual relationship.
Theme (2) — Disincentives and reverse burden: enhanced TDS (30% floor), denial of deductions absent stringent disclosure, and a deeming of unexplained receipts as income — designed to make NJA dealings costly and transparent.
Theme (3) — Constitutional validity upheld: T. Rajkumar (Madras HC) upheld s.94A(1) and the Cyprus notification as a valid exercise of delegated power and a legitimate response to non-exchange of information.
Theme (4) — Treaty interface: where a treaty exists, the NJA measures operate as a domestic counter-measure; the Cyprus episode shows the mechanism's diplomatic leverage (the notification was rescinded after the treaty/EOI was renegotiated).
A.4 Legislative evolution / Finance Act amendment trail
FA 2011 (w.e.f. 1-6-2011): Section 94A inserted as the NJA counter-measure.
Notification No. 86/2013 (1-11-2013): Cyprus notified as the first (and only) NJA.
2016 — T. Rajkumar (Madras HC): Constitutional validity of s.94A(1) and the Cyprus notification upheld.
2017 (Notification rescinding Cyprus NJA, with retrospective effect from 1-11-2013): Cyprus de-notified after renegotiation of the India-Cyprus treaty and EOI framework.
FA 2026: No amendment to s.94A; the NJA mechanism remains available though no area is currently notified.
A.5 CA practitioner pointers
(1) Before transacting with any offshore counterparty, check whether its jurisdiction is currently a notified NJA — if so, the full TP machinery, 30% TDS floor, and deduction-denial/disclosure rules apply.
(2) For any (historic Cyprus) NJA period, ensure the s.94A(3) authorisation/documentation conditions were met to preserve deductions, and be ready to explain the source of NJA receipts (s.94A(4)).
(3) Apply the 30% TDS floor (s.94A(5)) on payments to NJA-located persons during any notified period, overriding lower treaty/Act rates.
B. FA 2026 IMPACT NOTE
Section 94A is NOT amended by the Finance Act, 2026. The NJA counter-measure framework continues for AY 2026-27 onward; whether it bites in any year depends on whether a jurisdiction stands notified.
As Cyprus was de-notified with retrospective effect from 1-11-2013, there is currently no subsisting NJA notification; the section remains a standby anti-avoidance tool. T. Rajkumar continues to govern its validity.
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : Constitutional validity of s.94A and the NJA notification
1. T. Rajkumar v. Union of India (2016) 386 ITR 685 / 68 taxmann.com 182 (Madras)
Facts: A batch of writ petitions challenged the constitutional validity of s.94A(1) and of CBDT Notification No. 86/2013 dated 1-11-2013 notifying Cyprus as an NJA, contending that the section was excessively delegated, that it overrode the India-Cyprus DTAA, and that the consequences (30% TDS, deduction denial, deeming of receipts) were arbitrary.
Issue: Whether s.94A(1) is a valid piece of delegated legislation, whether the Cyprus notification was validly issued, and whether the NJA consequences are constitutionally permissible notwithstanding the DTAA.
Held: The Madras High Court upheld the constitutional validity of s.94A(1), the Cyprus notification and the associated press release. It held that where the purpose of a treaty is defeated by a contracting State's failure to exchange information, the conditions warrant the exercise of the delegated power under s.94A; the consequences (including the 30% TDS floor) are a legitimate counter-measure and not arbitrary. The treaty does not disable Parliament/the Government from enacting and applying such anti-avoidance counter-measures.
Ratio: Section 94A is constitutionally valid; the power to notify an NJA for lack of effective information-exchange is validly delegated, and the NJA consequences are a legitimate, non-arbitrary anti-avoidance response that can operate alongside a DTAA.
Relevance: The leading (and principal) authority on s.94A; governs any challenge to the section or to a future NJA notification.
D. PRACTITIONER'S NOTE
NJA compliance map (when a notification subsists): (1) treat the NJA counterparty as a deemed AE — full Chapter X documentation and Form 3CEB; (2) satisfy s.94A(3) conditions (bank authorisation; prescribed documents) to preserve deductions; (3) deduct TDS at the 30% floor (s.94A(5)); (4) be prepared to explain the source of any NJA receipt (s.94A(4)).
Candid note: the section's practical footprint has been confined to the Cyprus episode (now de-notified). For current advice, confirm the live notification status; for legacy Cyprus-period assessments, T. Rajkumar settles validity, and the disputes are about compliance with the s.94A(3) conditions.
E. SOURCES & CITATIONS
Caveat: This material is treatise-style commentary for practitioners and academic use. It is not legal opinion. Verify the current text, the latest CBDT circulars/notifications and the most recent appellate position before relying on any proposition in assessment, audit (Form 3CEB) or litigation.