Section 194LD of Income Tax Act covers provisions; relating to the deduction of TDS on payment of interest on the rupee denominated bond of an Indian Company; or Government securities to a qualified foreign investor or a foreign institutional investor.
Section 194LD of Income Tax Act
Under this section, any person who is liable for paying to a person; being a qualified foreign investor or foreign institutional investor; any income by way of interest referred to in sub-section (2); at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by cheque or draft or by any other mode, whichever is earlier, shall deduct income-tax thereon at the rate 5%.
The income by way of interest referred above shall be the interest payable on or after 1st June 2013 but before 1st June 2020 in respect of investment made by the payee in;
- A rupee denominated bond of an Indian Company; or
- A government security
However, the rate of interest in respect of bond referred above shall not exceed the rate as may be notified by the Central Government in this behalf.
Note: With effect from 1st April 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before 1st July 2020.
For the purposes of this section;
- Foreign Institutional Investor shall have the meaning assigned to it in clause (a) of the explanation to section 115AD
- Government security shall have the meaning assigned to it in clause (b) of section 2 of the securities Contracts Act, 1956
- Qualified Foreign Investor shall have the meaning assigned to it in the Circular No. Cir/IMD/DF/14/2011, dated 9th August 2011 as amended from time to time, issued by the Securities and Exchange Board of India, U/S 11 of the Securities and Exchange Board of India, 1992