Section 194E of the Income Tax Act, 1961, deals with the taxation of payments made to non-resident sportsmen and sports associations. This section ensures that tax is deducted at source on payments made to foreign sports professionals, whether they are individuals or entities. The aim is to ensure that non-residents also pay taxes on income earned in India.
What is Section 194E?
Under Section 194E, any person (including an individual, company, or any other entity) making a payment to a non-resident sportsman or sports association for their services must deduct TDS at a prescribed rate. This section ensures that non-residents, who might not be in India for long durations, still pay taxes on income earned in the country.
The provision aims to ensure that the tax due on payments made to non-residents is collected at the time the payment is made, rather than later. It is important to note that the section specifically targets payments to sportsmen, athletes, and organizations related to sports activities.
Key Features:
- Applicable to Non-Residents: This provision applies to non-residents, including foreign sportsmen, coaches, and sports associations.
- TDS Rate: The tax deduction under Section 194E is generally at the rate of 20% (without the benefit of any exemptions or deductions) on the income earned. However, this rate may vary depending on the tax treaty between India and the respective non-resident’s country.
- Scope of Payment: Payments covered under this section include any fee or reward given to non-residents for participating in a sporting event in India, either in cash or in kind.
Example:
Let’s consider a scenario to understand how Section 194E works:
Imagine a cricket club in India hires a foreign cricketer, Mr. John, for a series of matches. The total fee paid to Mr. John for his services is ₹5,00,000. According to Section 194E, the club must deduct TDS at 20% before paying Mr. John.
So, the TDS would be: TDS = 5,00,000 * 20% = ₹1,00,000
The club will deduct ₹1,00,000 as tax and pay Mr. John ₹4,00,000. The deducted tax will be deposited with the government on behalf of Mr. John.
Conclusion:
Section 194E ensures that the income of non-resident sportspeople or associations from activities in India is properly taxed. It also helps maintain transparency and accountability in the taxation process for foreign athletes and organizations. Anyone making such payments must comply with the TDS requirement to avoid penalties or legal issues.
– Ketaki Dandekar (Team Arthology)
Read more about Section 194E here – https://taxguru.in/income-tax/194.html