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Section 194LD of Income Tax Act.


November 30, 2022 |

6 mins read

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.

TDS Sections

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.


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