TDS on Income Payable to Foreign Portfolio Investors (FPIs) or Specified Funds
Introduction
TDS must be deducted under section 196D on income from securities (excluding interest on rupee-denominated bonds, government securities, or municipal debt securities) payable to Foreign Portfolio Investors (FPIs) or Specified Funds.
Key Provisions
- Deductor:Any person making payments related to:
o Income from securities held by FPIs.
o Income payable to Specified Funds under Section 10(4D).
- Deductee:
o FPIs (earlier FIIs) under Section 115AD.
o Specified Funds under Section 10(4D).
- Time of Deduction: At the time of credit or payment, whichever is earlier.
Rate of TDS
- For FPIs:20% plus applicable surcharge and cess.
o If covered under DTAA, TDS is deducted at 20% or the DTAA rate, whichever is lower, provided the recipient submits a Tax Residency Certificate (TRC).
- For Specified Funds:10%.
- Higher rates apply if PAN is not provided (Section 206AA)
Exemptions from TDS
No TDS is required on:
- Capital gains from the transfer of securities by FPIs (covered underSection 115AD).
- Income from units purchased in foreign currency (covered underSection 115AB).
- Exempt income of Specified Funds (underSection 10(4D)).
- Interest on Rupee Denominated Bonds, Government Securities, or Municipal Debt Securities (covered underSection 194LD).
Compliance Requirements
- Lower/Nil Deduction Certificate:Not available under Section 197.
- Deposit of TDS:
o 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 undeducted 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.