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

Introduction to Section 194LD of Income Tax Act

Section 194LD of the Income Tax Act, 1961, discusses TDS deductions on interest from investments in Rupee Denominated Bonds of Indian companies or Government Securities made by Foreign Institutional Investors or Qualified Foreign Investors. 

TDS Deduction Liability under Section 194LD

TDS will be deducted for the following beneficiaries: 

• Foreign Institutional Investor as defined in Section 115AD, now replaced with SEBI (Foreign Portfolio Investors) Regulations, 2019; or
• Qualified Foreign Investor.

TDS Liability Under 194LD

• The following interest types are subject to TDS: 
• Rupee Denominated Bond of an Indian Company; 
• Interest due from 01-06-2013 to 01-07-2023;
• Interest from Government Security Investment from June 1, 2013, to July 1, 2023;
• Interest from municipal debt securities investment from January 4, 2020, to July 1, 2023.

TDS Rate Under Section 194LD

The TDS rate is 5%, plus Surcharge or Health and Education Cess. If PAN isn't provided, the rate under Section 206AA is 20%. 

If the tax return isn't filed for the specified period, the rate under Section 206AB applies, except for non-residents without a Permanent Establishment (PE) in India. 

If both Section 206AA and Section 206AB apply, the higher rate is used.

Section 194LD Deduction Timing

According to Section 194LD, tax should be deducted at the time of income payment or credit, whichever comes first.

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