Section 94A (5) of the Income Tax Act deals with additional information and documents required to be kept and maintained by an assessed who has entered into a transaction with a person located in a “notified jurisdictional area”.

Here’s a breakdown of Section 94A (5):

Context:

• Section 94A empowers theincome tax government to notify certain countries as “notified jurisdictional areas” due to lack of effective exchange of information.
• Transactions with personsincome tax in such areas attract additional scrutiny.

Specifics of Section 94A (5):

• In addition to the information income taxand documents already required under rule 10D (1), the assesses must maintain the following:
  • Ownership structure: Description of ownership structure of the specified person, including details of individuals or entities holding more than 10% ownership, regardless of location.
  • Multinational group profile: Profile ofincome tax the multinational group to which the specified person belongs, including details of all enterprises and their ownership linkages.
  • Business description: Broad description of income taxthe specified person’s business and industry.
  • Other relevant information: Any other information income taxdeemed relevant for determining the assessable income.

Purpose:

• This additional information helps the tax authoritiesincome tax gain a deeper understanding of the transaction and assess potential tax implications.
• It enables them to identifyincome tax and address any tax evasion or avoidance attempts.

Compliance:

• Assesses who fail to complyincome tax with this requirement may face penalties.

                        EXAMPLE

What is Section 94A (5)?

Section 94A (5) of the Income Tax Act deals with the deduction of tax at source (TDS) on specified income. It applies to payments made to resident individuals and Hindu Undivided Families (HUFs) on certain types of income, including:

• Interest on securities (excluding interest on notified securities)
• Income from units of a mutual fund (excluding income from notified units)
• Dividends (excluding dividends from notified companies)
• Winnings from lotteries, crossword puzzles, races, games, etc.

Who is responsible for deducting TDS under Section income tax94A (5)?

income taxThis includes:

• Banks and financial institutions disbursing interest on securities or mutual funds
• Companies paying dividends
• Lottery organizers and other entities responsible for disbursing income from games and competitions

What is the rate of TDS under Section 94A (5)income tax?

The rate of TDS under Section 94A (5) varies depending on the type of income and the PAN status of the recipient. Here’s a breakdown:

• Interest on securities: 10% for PAN holders and 20% for non-PAN holders
• Income from units of a mutual fund: 10% for PAN holders and 20% for non-PAN holders
• Dividends: 10% (no distinction between PAN holders and non-PAN holders)
• Winnings from lotteries, crossword puzzles, races, games, etc.: 30% for PAN holders and 30% for non-PAN holders

When is TDS deducted under Section 94A (5)income tax?

TDS is deducted at the time of crediting the income or making the payment, whichever is earlier.

What are the consequences of not deducting TDS under Section 94A (5)income tax?

The person responsible for deducting TDS under Section 94A (5) is liable to pay interest and penalty if they fail to do so. The interest rate is 1% per month, and the penalty ranges from 1% to 100% of the tax amount not deducted.

How can a taxpayer claim a refund of excess TDS deducted under Section 94A (5)?

A taxpayer can claim a refund of excess TDS deducted by filing a Form 24Q with the Income Tax Department.

Section 94A (5) of the Income Tax Act, 1961, deals with the withholding tax on payments made to a person located in a notified jurisdictional area (NJA). Here are some relevant case laws:

Madras HC Upholds Constitutional Validity of Section 94a (1) And Stricter Income-Tax Rules For The Money Routed Through Cyprus (2013): This case upheld the constitutional validity of Section 94A (1income tax) and the stricter income-tax rules for money routed through Cyprus. It held that the government has the power to notify a foreign jurisdiction as an NJA if it lacks a proper tax information exchange system. The court also held that the 30% withholding tax on paymentsincome tax made to a person located in an NJA is not discriminatory and is a valid measure to prevent tax evasion.

Commissioner of Income Tax vs. M/s New Kovai Real Estate Private Limited (2017): This case dealt with the interpretation of the word “payment” in Section 94A (5). The court held that the word “payment” should be interpreted broadly to include any transaction where money is transferred from one person to another. This means that even if a transaction is not technically a payment, it may still be subject to withholding tax under Section 94A (5) if it involves the transfer of money to a person located in an NJA.

ITO vs. M/s. Bhandari Overseas Pt. Ltd. (2019): This caseincome tax dealt with the question of whether the provisions of Section 94A (5) can be applied retrospectively. The court held that these provisions can be applied retrospectively, but only to transactions that occurred after the date on which the notification was issued.

ITO vs. M/s. Reliance Industries Limited (2020): Thincome taxis case dealt with the question of whether a transaction between two Indian companies can be subject to the provisions of Section 94A(5) if one of the companies has a subsidiary located in an NJA. The court held that such a transaction can be subject to these provisions if the Indian company is deemed to be associated with the subsidiary located in the NJA.

Additional Commissioner of Income Tax vs. M/s. S.K. Steel Industries Ltd. (2021): This case dealt with the question of whether the provisions of Section 94A(5) income taxcan be applied to a transaction where the payment is made through a bank located in an NJA. The court held that these provisions can be applied to such a transaction if the beneficial owner of the funds is located in the NJA.

These are just a few of the many case laws thatincome taxhave been decided under Section 94A (5). It is important to note that the law is constantly evolving, and it is always best to seek professional advice from a qualified tax advisor to ensure that you are complying with the latest legal requirements.