Section 176 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 176 lets the Central Government notify a country or territory outside India as a "notified jurisdictional area" because of a lack of effective exchange of information. Once a territory is notified, transactions with persons located there attract transfer pricing, restrict deductions, treat unexplained receipts as income and raise the rate of tax deduction at source. This article reads the section as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
The Central Government may notify any country or territory as a notified jurisdictional area (section 176(1)). For a transaction with a person located there, all the parties are deemed associated enterprises, the transaction is deemed an international transaction, certain deductions are denied without authorisation or documents, an unexplained sum received or credited is deemed income, and tax is deducted at the highest of three rates, one of which is 30%.
Scope and what is not covered
Section 176 is in Chapter X. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. The section depends on a notification. What has been notified is not in the text consulted, and this article names no country or territory. Check the current notification and any later amendment, rule or notification before relying on it.
For the Chapter overview, see Chapter X of the Income-tax Act, 2025. The transfer pricing provisions it invokes are in section 162 (associated enterprise), sections 163 and 164 and section 165. If you deal with parties abroad and need to check their location against the notification, our NRI tax filing team can help.
Section 176(1): the notification
The Central Government may, by notification, specify any country or territory outside India as a notified jurisdictional area in relation to transactions entered into by any assessee, "having regard to the lack of effective exchange of information with such jurisdiction". The test for notification is the lack of effective exchange of information; the Act sets out no list.
Section 176(2): deemed associated enterprises and international transactions
Irrespective of anything contrary in the Act, if an assessee enters into a transaction where one of the parties is a person located in a notified jurisdictional area:
- (a) all the parties to the transaction are deemed to be associated enterprises within the meaning of section 162; and
- (b) any transaction of the nature described in section 163(1) and (2) is deemed to be an international transaction within the meaning of section 163,
and sections 161, 162, 163, 165, 166, 167, 171, 172 and 173 apply accordingly. For section 165, the benefit of the variation specified in section 165(3)(a)(ii) is excepted, so the tolerance band for an actual price close to the arm's length price does not apply to these transactions. The sub-section prints this exception in square brackets within the list of sections.
A printing slip: after "163(1) and (2)" in clause (b) the copy shows a stray "7"; it is not part of the text.
Section 176(3): deductions
Irrespective of anything to the contrary in the Act, no deduction is allowed:
| Clause | For | Unless |
|---|---|---|
| (a) | any payment made to a financial institution located in a notified jurisdictional area | 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 that institution on behalf of the assessee |
| (b) | any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area | the assessee maintains such other documents and furnishes such information as may be prescribed |
The form of the authorisation and the documents and information are left to the Income-tax Rules, 2026; see our rule-wise guides.
Section 176(4): unexplained sums
Irrespective of anything to the contrary in the Act, if in any tax year the assessee has received or credited any sum from a person located in a notified jurisdictional area, and (a) the assessee does not provide any explanation about the source of the sum in the hands of that person or in the hands of the beneficial owner (if that person is not the beneficial owner), or (b) the explanation provided is, in the opinion of the Assessing Officer, not satisfactory, then the sum is deemed to be the income of the assessee for that tax year.
Section 176(5): tax deduction at source
Irrespective of anything to the contrary in the Act, if any person located in a notified jurisdictional area is entitled to receive any sum, income or amount on which tax is deductible under Chapter XIX-B, the tax is deducted at the highest of the following rates:
- the rate or rates in force;
- the rate specified in the relevant provisions of the Act;
- the rate of 30%.
"Rate or rates in force" is the term defined in section 2(90) of the Act; this article states no slab or other rate beyond the 30% printed here.
Section 176(6): meaning of "person located in a notified jurisdictional area"
It includes:
- (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 (i) or (ii), in the notified jurisdictional area.
"Permanent establishment" has the meaning in section 173(c) and "transaction" the meaning in section 173(e); see our article on sections 171 to 173.
A worked example
The territory, names and amounts are invented. The Act's own notification is not in the text consulted, so the example assumes that a territory called "Territory X" has been notified.
Veena Textiles Private Limited buys yarn from a trading company established in Territory X. It pays Rs. 5,00,000 to a financial institution located there for finance charges and credits Rs. 2,00,000 received from a person located there.
- All the parties are deemed associated enterprises, and the purchase is deemed an international transaction under sub-section (2). The arm's length price is determined under section 165, without the benefit of the variation in section 165(3)(a)(ii).
- The finance charges of Rs. 5,00,000 are not deductible unless Veena furnishes the authorisation in the prescribed form (sub-section (3)(a)).
- The other expenditure on the purchase, including depreciation on any asset acquired, is not allowed unless the prescribed documents and information are maintained and furnished (sub-section (3)(b)).
- The Rs. 2,00,000 credited is deemed Veena's income if no explanation is given about its source in the hands of the person or the beneficial owner, or if the explanation is not satisfactory to the Assessing Officer (sub-section (4)).
- If Veena makes a payment on which tax is deductible under Chapter XIX-B to a person there, tax is deducted at the highest of the rate or rates in force, the rate in the relevant provisions and 30%.
Need help with dealings in notified jurisdictions?
Whether a counterparty is "located" in a notified area, what authorisations are needed and what rate of deduction applies all depend on the notification and the facts. Our NRI tax filing service can help you check each payment before it is made.
Key takeaways
- The Central Government notifies the area, having regard to lack of effective exchange of information.
- All parties to a transaction with a person located there are deemed associated enterprises, and the transaction is deemed an international transaction.
- Payments to financial institutions there need an authorisation to be deductible; other expenditure and depreciation need prescribed documents.
- An unexplained sum received or credited is deemed to be the assessee's income.
- Tax is deducted at the highest of the rate or rates in force, the rate in the relevant provision and 30%.
Read next
- Section 175: avoidance of tax by certain transactions in securities
- Section 177: limitation on interest deduction
- Section 162: meaning of associated enterprise
- Chapter X of the Income-tax Act, 2025
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.