TDS on Interest Paid on Foreign Borrowings
Introduction
As per section 194LC, Indian companies and business trusts must deduct TDS on interest paid to non-residents or foreign companies for specified foreign borrowings, including long-term infrastructure bonds and rupee-denominated bonds.
Key Provisions
- Deductor:Any Indian company or business trust making interest payments in respect of foreign borrowings.
- Deductee:Non-residents or foreign companies receiving interest payments.
- Time of Deduction:TDS is deducted at the time of payment or credit, whichever is earlier.
Rate of TDS
- 5% on general foreign borrowings.
- 4% for bonds listed in an IFSC (between 01-04-2020 and 30-06-2023).
- 9% for bonds listed in an IFSC (on or after 01-07-2023).
- Concessional TDS rates apply only if interest on such securities does not exceed the Central Government-approved rate based on the loan/bond terms. [Circular No. 7/ 2012, dated September 21, 2012]
- Higher rates apply if PAN is not provided (Section 206AA), except for long-term infrastructure bonds, where the concessional rate still applies.
Exemptions from TDS
- Interest on rupee-denominated bonds issued between 17-09-2018 and 31-03-2019 is exempt.
Compliance Requirements
- Lower/Nil Deduction Certificate:Not available under Section 197.
- Deposit of TDS:
o Payable via Challan ITNS 281 within 7 days from the end of the deduction month.
o For March deductions, deposit by 30th April.
o Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statement Filing:Quarterly submission in Form 27Q.
- TDS Certificate:Form 16A must be issued within 15 days from the due date of TDS statement filing.
Consequences of Non-Compliance
- Failure to Deduct or Deposit TDS:
o Interest liability under Section 201.
o Penalty under Section 271C (up to the non-deducted amount).
o Prosecution under Section 276B.
- Failure to Furnish TDS Statement:
o Rs. 200 per day penalty under Section 234E (limited to TDS amount).
o Additional penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificate:Penalty under Section 272A.