Last updated on July 31st, 2022 at 11:08 am
Section 194LC – Income by way of Interest from Indian Company
Payment of interest by an Indian Company or Business Trust ⇒ to a non-resident or a foreign company
|Relevant Section||Section 194LC of Income-Tax Act,1961|
|Name of the Section||Income by way of interest from an Indian company (note-1)|
|Introduced by||Finance Act, 2012 (w.e.f. 01/07/2012)|
|Purpose||Deduction of tax at a lower percentage on interest payments by Indian Company to non-resident|
|Who can be a recipient of Interest?||Non-resident (not being a company) or to a foreign company (note-2)|
|Who can pay the interest?||Indian Company or
Business Trust (w.e.f. 01/10/2014)
|Rate of TDS||5%+ Surcharge +HEC ( note-3)
(If PAN not available then 20% – Sec 206AA)
|When to deduct TDS?||At the time of credit to the account of the payee (note-4)
At the time of payment,
whichever is earlier
|Mode of payment||Cash or cheque or draft or any other mode|
Refer note – 1:- Interest referred above shall be [Section 194LC(2)]
⊗ In respect of money borrowed by the Indian Company or Business Trust in foreign currency from a source outside India:-
- by a loan agreement between 01 July 2012 to 01 July 2020.
- by issuing long-term infrastructure bonds between 01 July 2012 to 01 October 2014.
- by issuing any long-term bond (incl. infrastructure bond) between 01 October 2014 to 01 July 2020.
as approved by the Central Government.
(Here, a long-term bond means a bond should have an original maturity period of more than 3 years.)
⊗ Money borrowed from outside India by issuing Rupee Denominated Bonds before 01 July 2020. (w.e.f. 01/04/2016).
The above interest should not exceed the interest calculated at the rate as approved by the Central Government.
Refer note – 2:- A foreign company is a company that is not a domestic company [Sec. 2(23A)].
Refer note -3:- Surcharge and Health and Education Cess shall be charged in case the payment is made to a non-resident.
Refer note -4 There is no explanation in this section that transfer to a suspense account or any other payable account shall be treated as ‘credit to the account of payee’. Hence, if any interest is a credit to the suspense account then TDS is not applicable.
For approval and further clarification refer to Circular No. 7/2012 dated 21-9-2012 and Circular No. 15/2014, dated 17-10-2014
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