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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Understanding the Latest Income-Tax Amendments: Income-tax (Tenth Amendment) Rules, 2024

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The Ministry of Finance recently issued Notification No. 124/2024, which introduces significant changes to the Income-tax Rules, 1962. Published on 29th November 2024, this amendment outlines the safe harbour provisions applicable to the diamond mining business and updates the compliance requirements under the Income-tax Act, 1961. Let's dive into the details and implications of the Income-tax (Tenth Amendment) Rules, 2024.

What Are the Income-tax (Tenth Amendment) Rules, 2024?

The new rules amend the Income-tax Rules, 1962, bringing clarity and structured compliance for businesses engaged in diamond mining and the sale of raw diamonds. These rules primarily aim to provide a simplified framework for determining tax liability under the Safe Harbour Rules (SHR).

The Safe Harbour Rules ensure that income declared by businesses meeting specific conditions is accepted by tax authorities without further scrutiny, fostering certainty and reducing litigation.

Key Highlights of the Amendment

1. Safe Harbour for Diamond Mining Businesses

The amendment introduces a special framework under Rule 10TIA for income arising from selling raw diamonds.

Definition of Key Terms

  • Eligible Assessee: A foreign company engaged in diamond mining and meeting specified criteria.
  • Eligible Business: The sale of raw diamonds within a notified special zone.
  • Raw Diamonds: Diamonds that are uncut, unpolished, unassorted, and accompanied by a Kimberley Process Certificate.

Conditions for Safe Harbour

  • Income from eligible business must be 4% or more of gross receipts to qualify under the SHR.
  • Businesses opting for SHR cannot claim additional deductions, carry forward losses, or depreciation benefits under other provisions.

2. Compliance Requirements

Eligible businesses must file Form 3CEFC to opt for Safe Harbour. Key details to include are:

  • Gross receipts from eligible business.
  • Income declared as a percentage of gross receipts.
  • Details of other business activities, if any.

Failure to provide accurate information may lead to invalidation of the SHR option by the Assessing Officer.

3. Non-Applicability of Mutual Agreement Procedure (MAP)

Businesses opting for SHR cannot invoke the Mutual Agreement Procedure (MAP) under tax treaties for disputes related to eligible income.

4. Effective Dates

  • Amendments under Rule 10TD(3B) are retrospectively applicable from 1st April 2024.
  • New provisions for Safe Harbour (Rules 10TI to 10TIC) come into effect on the date of publication in the Official Gazette.

Implications for Businesses

1. Simplified Tax Compliance

The introduction of a fixed profit threshold (4%) under the Safe Harbour Rules simplifies the compliance process for eligible businesses, reducing the need for extensive documentation and audits.

2. Boost to Diamond Industry

This move is expected to enhance India's appeal as a hub for diamond trade, particularly in notified special zones, by providing tax certainty to foreign companies.

3. Enhanced Transparency and Fair Play

The requirement for Kimberley Process Certification ensures that only conflict-free diamonds benefit from this scheme, aligning with global ethical standards.

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