Section 194LC: TDS on Income by way of Interest from an Indian Company or a Business Trust

1. Deductor- The Indian Company or a business trust paying interest income
2. Deductee- A non-resident, not being a company, or to a foreign company
3. Time of Deduction- At the time of credit or payment, whichever is earlier.
4. Rate of TDS- 5%. In addition to the same, the Education Cess and SHE Cess is to be added to the base rate. Further, if the Surcharge gets applicable the same is also to be added.
5. Interest payable covered under this section-

a) Interest in respect of money borrowed by the Indian Company or the business trust in foreign currency from a source outside India –

i.   Under a loan agreement between 1st July 2012 to 1st July 2020.

ii.  By issuing long term infrastructure bonds between 1stJuly 2012 to 1st October 2014.

iii. By issuing long term bond including long term infrastructure bonds between 1st October 2014 to 1st July 2020.

b) Interest in respect of money borrowed by the Indian Company or the business trust in foreign currency from a source outside India by way of issue of rupee denominated bond before 1st July 2020.

c) To the extent, the interest income does not exceed the amount of interest calculated at the rate approved by the Central Government.

Recent Addition-

In order to attract fresh investment, create jobs and stimulate the economy, it is proposed to; –4% TDS rate shall apply on the interest payable to a non-resident, in respect of money borrowed in foreign currency from a source outside India, by way of issue of any long term bond or RDB on or after 1st April, 2020 but before 1st July, 2023 and which is listed only on a recognized stock exchange located in any IFSC.

∼Authored by – CA Anushka Saraogi∼

Allocation of Interest in TDS Returns