Section 176 — Notified Jurisdictional Areas | ITA 2025

Section 176 — - SPECIAL MEASURES IN RESPECT OF NOTIFIED JURISDICTIONAL AREAS

Section 176 is the substantive equivalent of 1961 s. 94A -- the NOTIFIED JURISDICTIONAL AREA (NJA) regime introduced FA 2011 to address jurisdictions failing to share tax information with India (FATF non-compliant / non-cooperative). When CG notifies an area as NJA, special anti-avoidance rules apply: (a) all NJA-counterparty transactions deemed associated-enterprise transactions (s. 162 TP); (b) deductions denied unless documentation prescribed; (c) higher TDS rates (typically 30% / 40% under s. 393); (d) AO discretion to disregard transactions. Cyprus was first notified (FA 2013); subsequent reciprocal-information protocol led to de-notification (2016). Currently very few jurisdictions notified -- but the framework remains as deterrent for non-cooperative jurisdictions.

Statutory text — Income-tax Act, 2025

Marginal note -- Special measures in respect of notified jurisdictional areas

(1) The Central Government may, by notification specify any country or territory outside India, as a notified jurisdictional area in relation to transactions entered into by any assessee, having regard to the lack of effective exchange of information with such jurisdiction.

(2) Irrespective of anything contrary in this Act, if an assessee enters into a trans- action where one of the parties to the transaction is a person located in a notified jurisdictional area, then,—

(a) all the parties to the transaction shall be deemed to be associated enter- prises within the meaning of section 162;

(b) any transaction of the nature described in section 163(1) and (2)7 shall be deemed to be an international transaction within the meaning of section 163, and the provisions of sections 161, 162, 163, 165 [except the benefit of variation specified in sections 165(3)(a)(ii)], 166, 167, 171, 172 and 173 shall apply accordingly.

(3) Irrespective of anything to the contrary in this Act, no deduction shall be allowed—

(a) for any payment made to any financial institution located in a notified jurisdictional area, unless the assessee furnishes an authorisation in the prescribed form authorising the Board or any other income-tax authority acting on its behalf to seek relevant information from the said financial institution on behalf of such assessee; and

(b) for any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area, unless the assessee maintains such other documents and furnishes such information as may be prescribed, in this behalf.

(4) Irrespective of anything to the contrary in this Act, if, in any tax year, the assessee has received or credited any sum from any person located in a notified jurisdictional area and—

(a) the assessee does not provide any explanation about the source of the said sum in the hands of such person or in the hands of the beneficial owner (if such person is not the beneficial owner of the said sum); or

(b) the explanation provided by the assessee, in the opinion of the Assessing Officer, is not satisfactory, then such sum shall be deemed to be the income of the assessee for that tax year.

(5) Irrespective of anything to the contrary in this Act, if any person located in a notified jurisdictional area is entitled to receive any sum or income or amount on which tax is deductible under Chapter XIX-B, the tax shall be deducted at the highest of the following rates—

(a) at the rate or rates in force;

(b) at the rate specified in the relevant provisions of this Act;

(c) at the rate of 30%.

(6) For the purposes of this section,—

(a) “person located in a notified jurisdictional area” shall include,—

(i) a person who is resident of the notified jurisdictional area;

(ii) a person, not being an individual, which is established in the notified jurisdictional area; or

(iii) a permanent establishment of a person not falling in sub-clause (i) or (ii), in the notified jurisdictional area;

(b) “permanent establishment” shall have the meaning assigned to it in section 173(c);

(c) “transaction” shall have meaning assigned to it in section 173(e). Limitation on interest deduction in certain cases.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 176	INCOME-TAX ACT, 1961 -- s. 94A
Sub-s. (1) -- CG notification of NJA	1961 s. 94A(1)
Sub-s. (2) -- AE-deemed treatment of NJA-counterparty	1961 s. 94A(2)
Sub-s. (3) -- documentation / deduction conditions	1961 s. 94A(3)
Sub-s. (4) -- TDS rate for NJA payments	1961 s. 94A(4)

STATUTORY ARCHITECTURE

FA 2011 introduction: India's FATF / Global Forum / OECD-driven response to non-cooperative jurisdictions. CG can notify any country / area as NJA based on non-effective tax-information-exchange. Effect of notification: (i) AE-DEEMED TREATMENT: any transaction with NJA-counterparty deemed AE-transaction under s. 162; full TP regime applies. (ii) DOCUMENTATION CONDITIONS: deduction in respect of payments to NJA-counterparty allowed only if assessee maintains and furnishes prescribed documentation (more rigorous than general TP documentation). (iii) TDS at HIGHER RATE: payments to NJA-recipient attract higher TDS (typically 30% absolute / 40% if no PAN) under s. 393. (iv) AO disregard authority: AO may disregard the transaction if NJA-counterparty status documented and economic substance lacking. Cyprus history: notified 2013 (initial NJA); de-notified 2016 after entered into amended DTAA with information-exchange protocol. Demonstrates the de-incentive structure -- countries cooperate to avoid notification.

PLANNING NOTES

(i) NJA-LIST MONITORING -- check current CG notifications; counterparty due diligence on NJA status. (ii) STRUCTURING AROUND NJA -- avoid NJA-counterparty in cross-border structures; use treaty-cooperation jurisdictions instead. (iii) DOCUMENTATION (sub-s. 3) -- if NJA transaction unavoidable, maintain prescribed documentation rigorously.

CROSS-REFERENCES

Section 161 / 162 / 165 -- TP regime.
Section 393 -- TDS on payments.
Section 159 -- DTAA.
FATF / OECD Global Forum guidelines on tax cooperation.

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