194LD. (1) Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
(2) The income by way of interest referred to in sub-section (1) shall be the interest payable,-
- on or after the 1st day of June, 2013 but before the 1st day of July, 2023 in respect of the investment made by the payee in-
- a rupee denominated bond of an Indian company; or
- a Government security;
- on or after the 1st day of April, 2020 but before the 1st day of July, 2023 in respect of the investment made by the payee in municipal debt securities:
Provided that the rate of interest in respect of bond referred to in sub-clause (i) of clause (a) shall not exceed the rate as the Central Government may, by notification in the Official Gazette, specify.]
Explanation.- For the purpose of this section,-
(a) "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;
(b) "Government security" shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
66[(ba) "municipal debt securities" shall have the meaning assigned to it in clause (m) of sub- regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);]
(c) "Qualified Foreign Investor" shall have the meaning assigned to it in the Circular No. Cir/IMD/DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
1) Who is responsible to deduct tax u/s 194LD?
Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor any income by way of interest.
2) Nature of Payment
a. Interest payable on or after the 1st day of June, 2013 but before the 1st day of July, 2023(Amended in Finance Act,2020) in respect of investment made by the payee in-
- a rupee denominated bond of an Indian company ; or
- a Government
b. on or after the 1st day of April, 2020 but before the 1st day of July, 2023 in respect of the investment made by the payee in municipal debt securities
3) When to Deduct TDS under Section 194LD?
- At the time of credit of such income to the account of payee or at the time of payment whichever is earlier.
- For this purpose, "payment" can be in cash or by issue of a cheque or draft of by any other mode.
4) Rate of TDS under Section 194LD
The rates of TDS shall be 5%.
- Surcharge, wherever applicable plus Health & Education Cess @4% shall be added to the above rates.
- The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.
- The provisions of section 206AA shall not apply to a non-resident, not being a company, or to a foreign company, in respect of income by way of interest under this section subject to such conditions as may be prescribed.
5) Other key points related to section 194LD
- Rate of interest in respect of rupee denominated bond of an Indian company shall not exceed the rate as may be notified by the Central Government in this behalf.
- "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD
- "Government security" shall have the meaning assigned to it in clause (b) of section 214b of the Securities Contracts (Regulation) Act,1956
- "Qualified Foreign Investor" shall have the meaning assigned to it in the Circular No. Cir/IMD/DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act,1992
- If tax is deductible under this section, then provisions of section 195 and Section 196D are not applicable in respect of such payment.