18 May 2010
The definition of Interest has been provided in section 2(28A) of the Income tax Act as following .
"interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;
According to this definition the interest includes any service fees or other charges in respect of the money borrowed or debt incurred. An upfront fee paid to a bank is nothing but service charges paid to bank as service fees or other charges in respect of moneys borrowed.
As per section 9 the income of a resident by way of Interest treated as deemed to accrue and arise in India, the income will be taxable in India. Hence TDS is applicable on such payments.
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) on the payment of Interest if the recipient of the income from interest is a resident of a country with whom India has a DTAA. Currently India has DTAA’s with more then 75 Countries.
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