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

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

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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

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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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