Last updated on: July 29, 2025
Section 94A of the Income Tax Act, 1961, was introduced to tackle transactions involving countries or territories identified as ‘Notified Jurisdictions’ that do not share adequate tax information with India, commonly referred to as ‘blacklisted jurisdictions.’ Under this provision, stricter scrutiny and adverse tax implications apply to transactions with entities in such jurisdictions, including the denial of certain tax benefits, higher rates of tax disallowance, and the requirement for Indian taxpayers to furnish additional documentation. The objective of Section 94A is to curb tax evasion, promote transparency, and deter abuse of international tax treaties by ensuring that Indian residents cannot exploit loopholes by transacting with these high-risk jurisdictions. The Central Board of Direct Taxes (CBDT) notifies the list of such jurisdictions from time to time. Section 94A thus serves as a key anti-avoidance tool in India’s tax regime.
Section 94A of the Indian Income Tax Act is a special anti-avoidance provision that was introduced to address situations where taxpayers attempt to shift profits or maintain unexplained transactions with countries that are considered “non-cooperative” for tax purposes. This section primarily deals with transactions involving persons located in countries, or specified territories, that do not share sufficient information with Indian authorities, making it difficult to track the origin or legitimacy of funds.
Section 94A was first added by the Finance Act 2011, but its significance continues to grow in 2025, especially given the rapid expansion of cross-border transactions, online business models, and the increasing adoption of cryptocurrencies. It underscores the importance of ensuring transparency in financial dealings and provides tools to Indian authorities to tackle tax evasion linked to offshore jurisdictions.
As globalisation advanced, it became common for individuals and companies to transact with entities in tax havens or countries with strict banking secrecy. Such transactions, if not properly scrutinised, could lead to:
Section 94A allows the Indian government to designate certain countries as “Notified Jurisdictions” if they do not cooperate with the exchange of tax information. It places extra onus on Indian taxpayers who conduct transactions with persons from these locations to ensure full compliance and disclosure.
The first country to be notified under Section 94A was Cyprus in 2013, which was later removed from the list after they agreed to share information as per Indian requirements.
Section 94A remains a powerful weapon in the arsenal of the Income Tax Department. The key features include:
People Also Ask:
What is a Notified Jurisdictional Area under Section 94A?
A Notified Jurisdictional Area (NJA) is any country or territory notified by the Central Government where the exchange of tax-related information is hindered or insufficient.
If you, as an individual or a business, enter into a financial transaction with a person located in a Notified Jurisdictional Area, you must:
In case you fail to comply, the expense may not be allowed as a deduction, resulting in higher taxable profits.
Tax professionals in 2025 point out that transactions with non-notified countries are less likely to trigger intense scrutiny, but with the increasing use of fintech and digital assets, maintaining clean documentation for all cross-border transactions is now standard advice.
Is Cyprus still a notified jurisdiction under Section 94A in 2025?
No, as of 2025, Cyprus is not in the list. Check the latest official notification for up-to-date jurisdictions.
Common scenarios where Section 94A might apply include:
Real-World Scenario (First-Hand Experience):
In 2024, an Indian digital marketing firm wanted to pay an affiliate partner in a country suddenly classified as an NJA. Their accountant advised extra due diligence and documentation to avoid TDS at 30 percent instead of the 10 percent that would be standard for such payments elsewhere. They also attached full transaction details in their income tax return as per Section 94A.
In 2025, with the rise of online marketplaces for professional services and business outsourcing, due diligence for Section 94A transactions has become easier thanks to automated compliance tools provided by top accountancy firms.
People Also Ask:
How can a taxpayer avoid issues under Section 94A?
By ensuring all required documents are maintained, full disclosures are made, and expert advice is sought before entering into transactions with entities in notified jurisdictions.
Chartered accountants recommend using verified online business platforms when dealing with cross-border outsourcing or digital marketing to reduce the risk of unknowingly transacting with entities from NJAs.
Feature | Section 94A Applicable Transaction | Regular International Transaction |
---|---|---|
Jurisdiction Type | Notified Jurisdictional Area | Regular (non-notified) Country |
TDS Rate | Higher of 30 percent or prescribed | Standard rate as per Income Tax Act |
Documentation Requirement | Stringent, exhaustive | Standard |
Disclosure in Tax Return | Mandatory and specific | Generic |
Deductibility of Expenses | Disallowance possible | Allowed, if conditions met |
Onus of Proof | On taxpayer | On tax department (generally) |
By 2025, several Indian banks and online payment gateways auto-flag transactions with high-risk jurisdictions for extra compliance checks, as part of Section 94A requirements.
With the popularity of online marketplaces that aggregate products and services from various companies globally, users can compare offerings and select verified partners. These platforms:
When outsourcing work or purchasing products from abroad, consider using such trusted online marketplaces to minimize the risk of accidentally entering into a Section 94A-notified transaction.
People Also Ask:
Can payments routed through online marketplaces be exempt from Section 94A?
No, but by dealing with reputed platforms, you reduce the risk of non-compliance as they often pre-screen sellers and disclose jurisdiction details upfront.
Marketplace operators now offer compliance dashboards highlighting vendor risks under laws like Section 94A, making it easier for businesses to stay updated in real time.
Are there any penalties for non-compliance under Section 94A?
Yes, failure to comply may lead to disallowance of expenditures, interest, and penalties for non-deduction or late deduction of TDS.
Section 94A targets transactions with entire countries labelled non-cooperative, whereas Transfer Pricing rules (Section 92 to 92F) target transactions between related parties, regardless of location. GAAR (General Anti Avoidance Rule) is broader and targets abusive arrangements wherever they occur.
Comparison Aspect | Section 94A | Transfer Pricing | GAAR |
---|---|---|---|
Scope | NJAs and non-compliance | Inter-company cross-border | Any abusive arrangement |
Trigger | Country risk | Related party | Substance over form |
Documentation | Mandatory, Enhanced | Comprehensive, Specific | Fact-based |
Section 94A works alongside but independently from Transfer Pricing and GAAR, so compliance with one does not necessarily ensure compliance with the others.
In recent years, several companies faced disallowance of crucial expenses, simply because they did not collect the right documents when dealing with partners in then-blacklisted jurisdictions. Now, most large firms use automated compliance checklists for cross-border payments.
First Hand Experience A Mumbai tech startup in 2023 mistakenly paid regular TDS on payments to a marketing firm in a listed jurisdiction. Upon audit, the deduction was disallowed, leading to a huge tax liability. They now use online marketplaces to onboard vendors with pre-verified compliance.
What is the risk of not following Section 94A procedures in 2025?
Missteps may lead to extra taxes, denial of deductions, professional notices, and a negative audit history.
In 2025, tax authorities are using AI-powered data analytics to check cross-border transactions for Section 94A violations, increasing the importance of upfront compliance.
Section 94A targets transactions with residents of non-cooperative foreign jurisdictions, requiring strict documentation and high tax deduction.
Check the government’s latest notification or reliable financial websites for the updated list.
It mainly applies to business or professional transactions, but always check if your payment type falls under the rules.
The deduction can be disallowed and you may face additional interest and penalties.
They pre-verify vendors, disclose country information, and automate compliance documentation, helping reduce risk.
For more detailed updates and legal texts, you may refer to the official Income Tax Department portal www.incometax.gov.in and professional advisories.
Sources and references:
(Please always verify current law and notifications as this article reflects the situation as of 2025 only.)
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Written by Prem Anand, a content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors.
Prem Anand is a seasoned content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors. He has a strong command of industry-specific language and compliance regulations. He specializes in writing insightful blog posts, detailed articles, and content that educates and engages the Indian audience.
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