TDS on income by way of interest from an Indian company [Section 194LC] | AY 2019-20 onwards

Concessional rate of tax on interest on foreign currency borrowings by an Indian company or business trust

Interest paid by an Indian company or business trust to a foreign company or a non-corporate non-resident in respect of borrowing made in foreign currency from sources outside India between 1.7.2012 and 30.6.2020 would be subject to tax at a concessional rate of 5% on gross interest (as against the rate of 20% of gross interest applicable in respect of other interest received by a non-corporate non-resident or foreign company from Government or an Indian concern on money borrowed or debt incurred by it in foreign currency).

To avail this concessional rate, the borrowing should be from a source outside India under a loan agreement at any time between 1.7.2012 and 30.6.2020 or by way of issue of long-term infrastructure bonds during the period between 1.7.2012 and 30.9.2014 or by way of issue of any long-term bond, including long-term infrastructure bonds during the period between 1.10.2014 and 30.6.2020 and approved by the Central Government in this behalf.

The interest to the extent the same does not exceed the interest calculated at the rate approved by the Central Government, taking into consideration the terms of the loan or the bond and its repayment, will be subject to tax at a concessional rate of 5%.

Rate of TDS

Such interest paid by an Indian company to a non-corporate non-resident or a foreign company would be subject to TDS@ 5% under section 194LC.

Extension of applicability of concessional rate of TDS

The benefit of concessional rate of TDS under section 194LC is extended to interest payable in respect of monies borrowed by an Indian company or business trust from a source outside India by way of issue of rupee denominated bond issued before 1st July, 2020.

Non-applicability of higher rate of TDS under section 206AA for non-furnishing of PAN

Levy of higher rate of TDS@20% under section 206AA in the absence of PAN would not be attracted in respect of payment of interest on long-term bonds, as referred to in section 194LC, to a non-corporate non-resident or to a foreign company.