Section 194LD of Income Tax Act – Payment of interest on bond {rupee-denominated} to FII or a QFI to a Non Resident or Foreign Company
| Section | 194LD |
| Particulars | Income by way of interest on certain bonds and Government securities |
| Type of business | Individual |
Introduction to Section 194LD of Income Tax Act
Section 194LD of the Income Tax cat, 1961 (hereinafter referred to as the “Act”) provides for deduction of TDS on interest payable on investments in Rupee Denominated Bonds of Indian companies or Government Securities made by Foreign Institutional Investors or Qualified Foreign Investors.
Who is liable to deduct TDS under Section 194LD
Taxes will be deducted if the beneficiary is one of the following: –
- Foreign Institutional Investor (as amended from time to time). For the purpose of this Section, “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to Section 115AD of the Act. In terms of Section 115AD, the FII concept has been substituted with SEBI (Foreign Portfolio Investors) Regulations, 2019; or
- Qualified Foreign Investor.
Which income is liable to TDS under 194LD?
The following interest is subject to withholding tax by the person responsible for its payment:
Investment in Rupee Denominated Bond of an Indian Company;
- Interest due between 01-06-2013 and 01-07-2023;
- Interest on the Government Security Investment Payable from June 1, 2013, through July 1, 2023;
- Interest accruing on the investment in municipal debt securities from January 4, 2020, through July 1, 2023.
Rate of TDS under Section 194LD of Income Tax Act
TDS is required to be deducted at the rate of 5%. Surcharge or Health and Education Cess will be added to these rates. If the deductee doesn’t provide his PAN to the deductor, tax will be deducted under Section 206AA at the rate of 20%.
If the deductee has not filed their tax return for the specified period, the tax will be deducted at the rate prescribed by Section 206AB. However, Section 206AB doesn’t apply to a non-resident who doesn’t have a Permanent Establishment (PE) in India.
If both Section 206AA and Section 206AB apply, tax will be withheld at higher of the two rates prescribed under Section 206AA and Section 206AB.
Timing for Deduction under Section 194LD
As per Section 194LD of the Act, tax must be deducted at the time of payment or credited of income, whichever is earlier.
