interest on loan from parent co situated outside india

This query is : Resolved

rashmi (Querist)
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03 August 2010 We have taken a loan from our Main Company in Belgium.

For interest repayment we have to consider following points

1) TDS u/s 195
2) Sec. 115A of Income Tax Act, 1961 is applicable - which says interest @ 25%
3)DTAA with Belgium will come into consideration which says interest rate is 15%
4) Hence TDS will be deducted at 15 % provided we submit to IT Authorities a certificate from belgium tax dept.
5) If interest amount is suppose Rs.100,000/- pm will the TDS be deducted on this amount and net amount be sent or wil TDS be over and above it and gross amount sent?
6)the benefit of TDS credit is available to the parent co.

is this correct???

Further we will have transfer pricing issues....

1) We are being charged interest @ 11% by them.
2) This being higher than prevailing bank rates the excess will be disallowed for us.
3) Shall we be taxed separately for this higher interest being paid.
4) Are we breaking any big rule in this entire event?
5) Is there any maximum limit on the rate that can be charged.

CA.Hanumantha Reddy

CA.Hanumantha Reddy (Expert)
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04 August 2010 For TDS you have to gross up the amount i.e. (100000/85*100). Yes the benifit of TDS is available to parent co.
For TP it be comparable in the market. whe the bank rate is less than the interest rate of your parent company then there shall be comparable date for the same. otherwise the same is charged to Tax.

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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04 August 2010 Have you complied the FEMA provisions under the ECB guidelines?
Regarding TDS if the same is to be paid net of taxes then you need to gross up the same. Also keep in mind the provisions of section 206AA regarding the PAN of your main company in belgium.
The excess interest with regard to comparable companies and in case of foreign loans generally LIBOR + certain percentage shall be deemed to be arm length interest.The excess interest paid paid will be disallowed and the you will need to pay tax and penalty on the same.
You are not breaking any rule. Also there is no maximum limit of rate provided under the act , only you through TP report have to show that the same is comparable to rates being paid by other Indian companies.

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