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 to exempt specific entities from this provision, subject to consultation with the Reserve Bank of India.

Key Features of Notification No. 123/2024

1. Exemption Scope

The notification specifies that Section 194N will not apply to:

  • Diplomatic Missions: Official embassies and diplomatic offices in India.
  • Consulates: Offices representing foreign governments in India.
  • United Nations (UN) Agencies: Including its specialized bodies and subsidiaries.
  • International Organizations: Entities recognized under international agreements.
  • Honorary Consuls: Individuals acting as honorary representatives of foreign nations.

2. Legal Basis for Exemption

These entities are exempt from Indian taxation under:

  • Diplomatic Relations (Vienna Convention) Act, 1972
  • United Nations (Privileges and Immunities) Act, 1947

This ensures compliance with international diplomatic and immunity norms.

3. Effective Date

The exemption is retrospective and applies from 1st December 2024, ensuring seamless compliance for eligible entities.

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