Section 194LC – Income by way of Interest from Indian Company

Section 194LC – Income by way of Interest from Indian Company
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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)

Or

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,  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 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 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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About CA Mehul Gupta 30 Articles
Chartered Accountant in practice, Certified GST Practitioner & Commerce Graduate. He is mainly engaged in the practice of Direct taxes, GST, International taxation, & assurance services. A visiting faculty in the Faridabad Branch of ICAI.

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