Special measures in respect of transactions with persons located in notified jurisdictional area
[Section-176 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 176(1) of Income Tax Act 2025
176(1) The Central Government may, by notification specify any country or territory outside India, as a notified jurisdictional area, having regard to the lack of effective exchange of information with such jurisdiction.
Section 176(2) of Income Tax Act 2025
176(2) Irrespective of anything contrary in this Act, if an assessee enters into a transaction 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 enterprises within the meaning of section 162;
- (b) any transaction of the nature described in section 163(1) and (2) 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.
Section 176(3) of Income Tax Act 2025
176(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 prescribed, in this behalf.
Section 176(4) of Income Tax Act 2025
176(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.
Section 176(5) of Income Tax Act 2025
176(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%.
Section 176(6) of Income Tax Act 2025
176(6) In 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).
FAQs on Section 176 of Income Tax Act 2025
What is a notified jurisdictional area under the Income Tax Act, 2025?
A notified jurisdictional area is any country or territory outside India that the Central Government specifies by notification due to lack of effective exchange of information with that jurisdiction.
When does Section 176 of the Income Tax Act, 2025 come into effect?
Section 176 comes into effect from 1st April, 2026.
What happens if a person enters into a transaction with someone located in a notified jurisdictional area?
All parties to such a transaction are deemed to be associated enterprises and the transaction is deemed to be an international transaction, attracting transfer pricing provisions under sections 161, 162, 163, 165 (except section 165(3)(a)(ii)), 166, 167, 171, 172, and 173.
Are deductions allowed for payments to financial institutions in notified jurisdictions?
No deduction is allowed unless the assessee furnishes a prescribed authorisation allowing the tax authorities to obtain information from the financial institution.
Are other expenditures with persons in notified jurisdictions allowed as deductions?
No deduction is allowed for such expenditures or allowances (including depreciation) unless the assessee maintains prescribed documents and furnishes required information.
What happens if an assessee receives money from a person located in a notified jurisdiction?
If the assessee cannot satisfactorily explain the source of the sum in the hands of the payer or its beneficial owner, it is deemed to be the assessee’s income for that tax year.
How is tax deducted on payments made to persons in notified jurisdictions?
Tax must be deducted at the highest of (a) the rate in force, (b) the rate specified in the relevant provisions, or (c) 30%.
Who qualifies as a “person located in a notified jurisdictional area”?
This includes a resident of the jurisdiction, a non-individual entity established there, or a permanent establishment of a person (not otherwise covered) in the jurisdiction.
What does the term “permanent establishment” mean in this context?
It has the meaning assigned to it in section 173(c) of the Act.
What does “transaction” mean for the purposes of Section 176?
It has the meaning assigned to it in section 173(e) of the Act.
Is the deeming of associated enterprise and international transaction automatic for all dealings with notified jurisdictions?
Yes, as per Section 176(2), this deeming applies irrespective of any other provision in the Act.
Is there any exception to the application of section 165 for such transactions?
Yes, the benefit of variation specified in section 165(3)(a)(ii) does not apply.
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