A Complete Compliance Playbook on Section 194E vs 195, Expense Recognition, Advances, GST RCM and FEMA
By CA Surekha Ahuja
Why This Topic Deserves Special Attention
Hotels, resorts, luxury venues, event companies and corporates increasingly engage foreign magicians, artists, musicians, DJs, sports personalities and performers for India-based events.
What appears to be a simple professional fee payment often turns into:
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wrong section TDS deduction,
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disallowance of expense u/s 40(a)(i),
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payer deemed assessee-in-default u/s 201,
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GST RCM omissions,
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FEMA remittance blocks by banks.
The single biggest error seen in practice:
Blindly applying Section 195 instead of Section 194E
This guidance note resolves that — conclusively and lawfully.
Core Legal Architecture: Why Section 194E Overrides Sec.195
Statutory Position
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Section 194E applies to payments to non-resident sportsmen or entertainers for performance in India.
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Section 195 is a general withholding provision for sums chargeable to tax paid to non-residents.
Interpretative Rule (Settled Law)
Specific provision overrides general provision
Section 194E is:
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a self-contained code
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contains a non-obstante mechanism through Section 115BBA
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designed specifically for entertainers & sportsmen
Result:
Once a person qualifies as an “entertainer”, Section 195 steps out completely.
Who Qualifies as an “Entertainer” (Practical Test)
An entertainer includes:
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Magicians
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Musicians / singers
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DJs / live performers
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Stage artists
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Performers at hotel events, weddings, corporate nights
Key test:
If income arises from performance before an audience in India, Section 194E applies — regardless of:
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whether payment is lump sum,
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whether performance is one-day,
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whether it is called “professional fee”.
Why Section 194E Is Payer-Friendly (and Safer Than 195)
Section 194E – Gross Basis Taxation
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Flat 20% on gross amount
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No deduction for:
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travel,
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accommodation,
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props,
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agent commission,
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rehearsals
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No profit estimation
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No Section 195(2) application
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No Rule 37BC debate
Section 195 – Net Basis Risk
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Requires estimation of net taxable income
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Requires expense attribution
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CA assumes risk in Form 15CB
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Under-deduction → payer liability
Professional insight:
From a payer’s risk perspective, 194E is the safest withholding provision in the Act.
Advance Payments: Timing of TDS & Expense Recognition
Income-tax Law Principle
TDS is deductible:
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at the time of credit or payment, whichever is earlier
Illustration
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Feb 2026: USD 2,500 advance paid
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April 2026: USD 2,500 balance paid
✔ TDS under 194E must be deducted on BOTH payments, even though:
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performance occurs later,
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advance is refundable only on cancellation.
Accounting Treatment (Hotel Books)
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At advance stage:
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Dr. Advance to Performer
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Cr. Bank
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Expense recognised only post-performance
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TDS deposited immediately — no mismatch risk
Critical caution:
Failure to deduct TDS on advance = permanent disallowance even if deducted later.
Expense Allowability in Hotel Books (40(a)(i) Protection)
A hotel’s expense is allowable if:
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TDS under correct section (194E) is deducted
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Deposited within due dates
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Form 16A issued
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27Q filed correctly
Common error:
“Since expense relates to next year, TDS can be deducted later”
Incorrect.
TDS obligation is transaction-linked, not expense-linked.
DTAA: When It Helps and When It Doesn’t
Article 17 of Most DTAAs
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Allows source country (India) to tax entertainer income
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Usually no exemption
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Reduced rate (10–15%) only if explicitly provided
Reality check:
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DTAA rarely overrides 194E
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DTAA relief is exceptional, not default
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Burden of proof lies on payer + CA
Form 15CB: Why 194E Certification Is Easier & Safer
Under 194E
CA certifies:
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Nature: Entertainer income
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Section: 194E r/w 115BBA
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Basis: Gross
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Rate: Flat
No estimation, no assumptions.
Under 195
CA must:
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estimate expenses,
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assume profit margin,
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apply DTAA,
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risk under-certification.
Professional verdict:
For events and performances, 194E is the gold-standard compliance path.
GST Reverse Charge (RCM): Parallel but Independent
Why GST Applies
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Import of services
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Artistic / performance service
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Supplier non-resident, no GST registration
Rate
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18% IGST under RCM
Key Points
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GST payable even on advance
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Paid in cash ledger
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ITC available (if output taxable)
Important distinction:
GST compliance is independent of TDS compliance — both must be done.
FEMA Compliance: Remittance Without Red Flags
Nature
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Current account transaction
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Artistic services
Process
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Form 15CA + 15CB mandatory
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Purpose code (artistic services)
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Contract + passport copy
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No RBI approval needed under limits
Risk area:
Banks reject remittances if section mismatch (195 vs 194E) appears.
Common Mistakes That Trigger Litigation
| Mistake | Consequence |
|---|---|
| Using 195 instead of 194E | Assessee-in-default |
| Not deducting on advance | Permanent disallowance |
| DTAA assumed without proof | Short deduction |
| GST ignored | RCM demand + interest |
| FEMA docs incomplete | Remittance block |
Decision Matrix (Zero-Mistake Tool)
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Is payee non-resident? → Yes
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Is activity live performance? → Yes
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Audience/event in India? → Yes
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Result → Section 194E applies
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Deduct on gross
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GST RCM @18%
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FEMA via 15CA/CB
No discretion. No ambiguity.
Final Professional Position
Section 194E is not an alternative to Section 195 — it replaces it.
For hotels and event businesses, it is the safest statutory harbour.
Foreign entertainers can always:
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file return,
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claim refund,
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claim DTAA relief themselves.
But the payer must prioritise certainty over optimisation.
Closing Note
This guidance is based on statutory interpretation, consistent departmental practice, and real assessment experience. It is designed to ensure zero defaults, zero litigation, and full allowability of expenses.
