Section 194N Exemption for Foreign Representations: Key Highlights of the New Income-Tax Notification

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  On 28th November 2024 , the Ministry of Finance issued Notification No. 123/2024 , bringing clarity to the applicability of Section 194N of the Income-tax Act, 1961. The notification exempts specified foreign representations from the provisions of this section, reinforcing India's commitment to international diplomatic norms and global cooperation. Effective from 1st December 2024 , this move comes after due consultation with the Reserve Bank of India (RBI) and aligns with international protocols such as the Vienna Convention and the United Nations Privileges and Immunities Act . Understanding Section 194N of the Income-tax Act Section 194N mandates tax deduction at source (TDS) on cash withdrawals exceeding ₹1 crore in a financial year . The provision applies to withdrawals from banks, co-operative banks, and post offices, aiming to curb cash usage and promote digital transactions. Fifth Proviso to Section 194N The fifth proviso grants the Central Government the authority ...
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New CBDT Notification on Income Tax Exemption for Petroleum and Natural Gas Regulatory Board (PNGRB)

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In a recent update that will be of particular interest to stakeholders in the energy and taxation sectors, the Ministry of Finance under the Department of Revenue has issued Notification No. 118/2024 (dated November 12, 2024) through the Central Board of Direct Taxes (CBDT). This notification grants tax exemption status to the Petroleum and Natural Gas Regulatory Board (PNGRB) under sub-clause (b) of clause (46A) of section 10 of the Income-tax Act, 1961.

This blog delves into the specifics of the notification, its implications, and what it means for the petroleum and natural gas industry in India.

Key Highlights of the Notification

1. Tax Exemption under Section 10(46A) of the Income-tax Act
The notification, published under S.O. 4895(E), provides tax exemption for PNGRB starting from the assessment year 2024-25. This exemption is granted under sub-clause (b) of clause (46A) of section 10 of the Income-tax Act, 1961. Section 10(46A) enables the Central Government to exempt specific authorities and boards from income tax on income generated from activities aligned with their legislative purpose.

2. Validity of Exemption
The exemption will remain in force as long as the PNGRB continues to fulfill its mandate under the Petroleum and Natural Gas Regulatory Board Act, 2006. The notification stipulates that this tax exemption applies only as long as PNGRB operates in line with the purposes listed under sub-clause (a) of clause (46A) of section 10 of the Income-tax Act.

3. PAN for Identification
The notification specifies PNGRB’s Permanent Account Number (PAN) as AAALP0582E for clarity and compliance purposes. The PAN inclusion helps the Income Tax Department easily identify PNGRB in all tax-related matters, thus simplifying verification and record-keeping processes.

Implications of the Notification

This notification has several significant implications for the regulatory landscape and the operational efficiency of PNGRB:

1. Financial Efficiency and Enhanced Focus on Regulatory Functions
With the tax exemption status, PNGRB can allocate more resources toward its regulatory functions. This financial relief allows PNGRB to operate with reduced financial constraints, enabling it to focus on essential regulatory roles, including fair market practices, pricing transparency, and safeguarding consumer interests in the petroleum and natural gas sectors.

2. Encouragement of Sectoral Reforms
The petroleum and natural gas industry is vital to India’s economic development. Tax exemptions for regulatory bodies such as PNGRB promote further investments, market reforms, and the implementation of policies conducive to growth and innovation within the sector.

3. Tax Exemption as an Enabler of National Energy Goals
The tax exemption aligns with India's national energy objectives. As a regulator, PNGRB is critical to the oversight and facilitation of infrastructure development, equitable distribution of resources, and the fostering of a competitive energy market. These efforts are essential for achieving energy security and sustainability.

What is the Petroleum and Natural Gas Regulatory Board (PNGRB)?

Established in 2006, the Petroleum and Natural Gas Regulatory Board (PNGRB) is a statutory body created under the Petroleum and Natural Gas Regulatory Board Act, 2006. PNGRB’s primary responsibilities include regulating the refining, processing, storage, transportation, distribution, marketing, and sale of petroleum, petroleum products, and natural gas in India.

The core functions of PNGRB are to:

  • Ensure fair trade practices in the market.
  • Facilitate an uninterrupted and adequate supply of petroleum and natural gas.
  • Promote a competitive market environment.
  • Encourage healthy investments in the energy infrastructure.

With the new tax exemption, PNGRB is expected to operate with increased financial flexibility, which can help it fulfill these duties more effectively.

Understanding Section 10(46A) of the Income-tax Act, 19611. Purpose of Section 10(46A)

The main goal of Section 10(46A) is to grant income tax exemption to certain statutory or government-established boards, authorities, or commissions. These bodies generally focus on regulation, social welfare, infrastructure, and development, and operate without a profit motive.

The exemption under Section 10(46A) applies to income generated through activities directly related to their mandates, ensuring they retain more funds to fulfill their public-service objectives.

2. Eligibility Criteria Under Clause (46A)
To qualify for tax exemption, an entity must meet the following requirements:

  • Established by Government: The board or authority should be constituted by the Central Government, a State Government, or through an Act of Parliament or State Legislature.
  • Alignment with Public Interest: The body must be set up with a clear public service or regulatory purpose and operate in the interests of the broader public or a sector integral to the nation, such as energy, health, finance, or social development.
  • Activity Conformance: Only those activities outlined in the entity’s governing legislation (or closely related to its statutory objectives) qualify for income tax exemption. This ensures that exemptions are limited to income generated from work directly tied to its regulatory or service functions, preventing misuse of the provision.

3. Types of Income Eligible for Exemption
Entities covered under Section 10(46A) are eligible for exemption on incomes derived from activities that directly support their purpose. Eligible sources of income may include:

  • Fees and Charges: Income from application or processing fees, licensing fees, penalties, or other charges collected as part of regulatory activities.
  • Government Grants or Allocations: Grants, endowments, or other government allocations meant to support operations or projects that align with the authority’s objectives.
  • Other Incidental Income: Any other incidental income, such as interest earned on funds, provided it is directly related to furthering the board’s purpose.

4. Compliance and Period of Exemption
The exemption remains effective as long as the entity continues to operate in line with the purpose for which it was formed. If the entity’s functions change significantly or it no longer fulfills its statutory mandate, it may lose its eligibility for tax exemption. Each eligible entity is assigned a Permanent Account Number (PAN) to streamline compliance and tracking for taxation authorities.

5. Application to PNGRB (as per Notification No. 118/2024)
In the case of PNGRB, the tax exemption is effective starting from the assessment year 2024-25, and applies to incomes derived from its regulatory functions, such as overseeing gas distribution, ensuring fair market practices, or managing sectoral competition. PNGRB’s exemption is thus confined to income generated directly through its activities related to the Petroleum and Natural Gas Regulatory Board Act, 2006.

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