Tax laws usually try to make things simple, but Section 94A is a bit of a tough love provision. Introduced to tackle the problem of black money and tax evasion, this section acts as a warning to anyone doing business with countries that refuse to share tax information with India. If the Indian government feels a country is being non-cooperative, they label it a Notified Jurisdictional Area (NJA). Once a country is on this list, every transaction you have with anyone there, be it an individual or a company gets hit with extra scrutiny, higher taxes, and a mountain of paperwork. As we move through the 2025-26 tax year, staying compliant with these rules is crucial to avoid heavy penalties.

What Exactly is a Notified Jurisdictional Area (NJA)?

Section 94A gives the Central Government the power to blacklist any country or territory that doesn't effectively exchange tax-related info with India.

The Logic: If India can't verify if someone is paying their fair share of tax in a specific country, it assumes the worst and applies strict rules.
The Current Status: Interestingly, while Cyprus was the most famous NJA for a long time, it was removed from the list after it started cooperating. As of late 2025, the government keeps this list dynamic. Before dealing with any offshore entity, it is wise to check the latest Ministry of Finance notifications.

The Higher TDS Rule (The 30% Hammer)

Normally, TDS (Tax Deducted at Source) on payments to non-residents varies depending on the type of income. However, under Section 94A, if you are paying someone in an NJA, the rules change completely.

You must deduct tax at the highest of the following rates:

The rate specified in the relevant provision of the Income Tax Act.
The rate or rates in force (as per the Finance Act).
A flat 30%.

In simple terms, for almost any payment, interest, royalty, or fees for technical service,s you will likely end up deducting a massive 30% TDS (plus applicable surcharge and cess).

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Dealing with Tax Deductions Under Section 94A

This is where it gets tricky for businesses. If you want to claim an expense (deduction) for a payment made to an entity in an NJA, the law makes you jump through several hoops.

A. Payments to Financial Institutions

If you pay a bank or a financial institution in an NJA, you cannot claim that as a deduction unless you provide a special authorization form. This form essentially gives the Indian Tax Authorities the right to knock on the door of that foreign bank and ask for your transaction details. No authorization = No tax deduction.

B. Other Expenditures and Allowances

For any other costs (like buying goods or paying for services), you must:

Maintain detailed documents as prescribed by the law.
Be ready to disclose the Beneficial Owner of the money.
Prove that the transaction was at an Arm’s Length Price (Market Rate).

Type of Payment

Requirement for Deduction

Banks/Financial Institutions

Mandatory authorization for info exchange.

Consultancy/Service Fees

Full disclosure of recipient's details and proof of source.

Purchase of Assets

Detailed documentation and Transfer Pricing proof.

The Associated Enterprises Trap

One of the most powerful parts of Section 94A is that it automatically treats you and the person in the NJA as Associated Enterprises. Even if you have no relation to them and it’s a one-time deal, the law assumes you are related. This means Transfer Pricing rules apply. You must prove to the government that you didn't overpay for the service just to move money out of India. If you can't prove the price was fair market value, the tax officer can reject your expense entirely.

Receiving Money from an NJA

If you receive money from a person or company in an NJA, the burden of proof is 100% on you.

You must explain the source of the money in the hands of the payer.
It’s not enough to say my uncle sent it. You have to show where the uncle got it from.
If you can't explain the source satisfactorily, the entire amount will be treated as your own income and taxed at peak rates.

Summary: Why Section 94A Matters to You

Feature

Impact under Section 94A

TDS Rate

Minimum 30% (usually the highest applicable rate).

Deductions

Blocked unless full info-sharing authorization is provided.

Scrutiny

Automatic Transfer Pricing audit and high reporting.

Receipts

Deemed as your income if the source is not proven.

Conclusion

Section 94A is a keep-away sign for tax havens. While it’s not illegal to deal with these areas, the government makes it so expensive and administratively difficult that most businesses choose to look elsewhere. If you find yourself needing to transact with an entity in a Notified Jurisdictional Area in 2025-26, don't try to do it yourself. The 30% TDS and the risk of losing your deductions mean you should definitely consult a tax expert to ensure every form and authorization is perfectly in place.

Frequently Asked Questions (FAQs)

Is Cyprus still a Notified Jurisdictional Area?

No, Cyprus was removed from the list a few years ago after it agreed to share tax information with India.

Can I claim the 30% TDS back as a refund?

If you have paid more tax than you owe after your final calculation, you can claim a refund, but be prepared for a very detailed audit of your NJA transactions.

What happens if I don't give the Authorization Form for a bank payment?

Your tax deduction will be rejected. This means you will pay tax on your full income without deducting that expense, effectively paying tax twice.

Does Section 94A apply to individuals?

Yes, it applies to any assessee which includes individuals, companies, and partnership firms.

What is the Arm's Length Price?

It is the price that two unrelated people would agree upon in the open market. Section 94A forces you to prove your NJA deal wasn't sweetened.

Do I need to report NJA transactions in my ITR?

Yes, modern ITR forms have specific columns asking if you’ve had transactions with anyone in an NJA.

Is there a threshold limit for Section 94A?

No, unlike other TDS rules, there is generally no minimum amount for Section 94A. Even small payments can trigger these rules.

Can I use a DTAA (Double Tax Avoidance Agreement) to lower the 30% rate?

Usually, Section 94A is designed to override other rules, but if a valid tax treaty exists, it’s a complex legal area. Most NJAs, by definition, don't have effective treaties.

What if the person in the NJA is my relative?

The rules still apply. You must prove the source of any money they send you, or it will be taxed as your income.

How do I know which countries are currently blacklisted?

You should check the latest notifications on the official Income Tax Department website or consult your CA, as the list can change.

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