The Govt Invokes Section 94A by suspending tax benefits pact with Cyprus, talking a stringent measure.
With this section 94A attains a step towards resolving the larger issue of black money in India. Memorandum explaining Finance Bill, 2011 explains that section 94A will empower Government of India to black list certain foreign tax jurisdiction with which India does not have effective exchange of tax information; and thereby penalise both the taxpayer in India as well as the concerned non-resident located in such foreign tax jurisdiction.
Double Tax Avoidance Agreement (â€˜DTAAâ€™) and Tax Information Exchange Agreement (â€˜TIEAâ€™) is used to a tool to counter black money. In recent past TIEA is considered as an effective tool to counter problem of black money. This is very much evident by the fact that during 2010-2011 India had concluded discussion for 11 Tax Information Exchange Agreements.
The Ministry of Finance has issued a Notification dated 1.11.2013 notifying Cyprus as a â€œnotified jurisdictional areaâ€ u/s 94A of the Income-tax Act, 1961. The consequences of the Notification are draconian and are broadly the following:
(i) All transactions with a person in Cyprus will have to meet the rigors of transfer pricing;
(ii) A deduction in respect of any payment made to any financial institution in Cyrus and deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus is subject to specific conditions;
(iii) Sum received from a person located in Cyprus is deemed to be the income of the assessee unless the assessee satisfactorily explains the source of such money in the hands of the payer;
(iv) Payments to persons located in Cyprus is liable for TDS at 30 per cent
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