In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.
Summary of Section 195A Income Tax Act:
Grossing up: – If TDS is to be borne by the payer of such income then TDS is required to be deducted by grossing up the net amount payable.
The same may be explained with the help of following example:
Amount paid to a Professional= Rs. 500000/-
Rate of TDS= 10%
In this case if TDS liability to be borne by the payer their own pocket, then TDS is required to be deducted by grossing up the net amount payable
Amount (Grossed up with TDS); = 500000/90% =Rs 555555/-
TDS =555555*10% = Rs. 55555/-