TDS Deduction by an Indian Specified Company or Business Trust from Interest to a Non-Resident / Foreign Company (Section 194LC)

Who is responsible to Deduct TDS under Section 194LC

Specified company (i.e., an Indian company) or business trust (with effect from October 1, 2014) is responsible for tax deduction under section 194LC in respect of interest paid or payable to a non-resident/foreign company. This section is applicable if interest is paid or payable at approved rate.

Interest should pertain to money borrowed in foreign currency from a source outside India—

1. under a loan agreement (at any time on or after July 1, 2012 but before July 1, 2020); or

2. by way of issue of long-term infrastructure bonds (at any time on or after July 1, 2012 but before October 1, 2014); or

3. by way of issue of long-term bonds including long-term infrastructure bonds (at any time on or after October 1, 2014 but before July 1, 2020); or

4. in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond before July 1, 2020.

When TDS under Section 194LC is to be Deducted ?

Tax shall be deducted at the time of payment or at the time of giving credit to the other party, whichever is earlier.

Rate of TDS under Section 194LC

The rate of TDS shall be 5% of such gross interest plus surcharge if applicable.

Notes:

1. Education cess or SHEC shall be added to the above rates and surcharge if applicable.

2. The rate of TDS will be 20% in a case where interest is payable by the specified company under a loan agreement mentioned above, if PAN is not quoted by the deductee.

However, as per section 206AA(7), the provisions of section 206AA shall not be applicable in respect of payment of interest in respect of long-term infrastructure bonds referred to in this section.

Note.—Tax can not be deducted at lower rate. Hence, section 197 shall not be applicable in this case.