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TDS ON INTEREST PAID TO NRI

NAGAMANI (BUSINESS) (43 Points)

05 November 2009

Our company obtained a loan from an NRI in indian rupee by cheque and paying Interest for the same in Indian rupee by cheque drawn in favor of the NRI. Do TDS to be deducted as per sec 195.

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7 Replies

CA Trinath Galla (student) (3130 Points)
Replied 05 November 2009

yes it should otberwise u cant claim dat interest as an expenditure

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NAGAMANI (BUSINESS) (43 Points)
Replied 09 November 2009

Thanks for your reply

Sahil (CA FINAL) (182 Points)
Replied 09 November 2009

TDS SHOULD BE DEDECTED EVEN THOUGH THE PAYMENT IS made to resident individual. But for this purpose the Interest Paying party should be liable to Income tax Audit u/s 1961.

The prescribed limit is Rs. 10,000 in case of Bank & Rs. 5000 for Others.

Sunil (Trader) (2611 Points)
Replied 09 November 2009

TDS to Non Resident when paid to their NRO account in Indian Rupees is deductible u/s 194A only. There are restrictions imposed under FEMA for how much you can borrow from an NRI like this. If you go backwards about maybe 1 - 1.5 months, there was a similar posting in which a reply was given with relevant section of FEMA. The enquiry was similar to yours. Just hunt. The condition is both interest and the principal cannot be repatriated abroad.

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 10 November 2009

Dear Nagamani,

I assume your company has accepted deposit from NRI in persuance of Schedule 7 read with regulation 7(2) of Foreign Exchange Management (Deposit) Regulation 2000.

Section 194 of IT Act comes to role only in case depositor is Resident by virtue of Section 6 of IT Act.

In case depositor is non-resident, Section 195 read with section 90 comes to the picture and tax is to be deducted as per rate in force or rate as per DTAA agreement.

In view of this, your company is require to deduct TDS at the rate of 30.9% or if NRI is eligible to claim DTAA benefi you may collect necessary documents from him before allowing such DTAA concesional rate.

You may also note following provision of FEM (Deposit) Regulation 2000;

1) Maximum deposit period shall be 3 years.

2) Amount raised through such deposits shall not be applied for re-lending or or for undertaking agricultural/plantation activities or real estate business or for investing in any other concern or firm or company engaged in or proposing to engage in agricultural/plantation activities or real estate business.

3) Amount of Deposits shall not be allowed to repatriate outside India.

Further, Foreign Exchange Management (Remittance of Asset) Regulation 2000 has given general permission to NRIs/PIO for remittance of funds held in NRO Account upto USD 1 Million per financial year subject to certain documentation requirement. The above amount shall be eligible for repatriation under above regulation/scheme.

Regards

Juzer

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arun (practice) (28 Points)
Replied 03 April 2011

Good elobrate answer.Thanks. However, if mr A deposited in his NRO a/c in X bank. Transfer Rupee fund to other Bank Y. He is availing OD against FD. Whether Y bank has any liability for TDS ? if so how much ? As per Master Circular it is within limit of 1 Cror (earlier 20 Lacs)

satendra (Sr. Accounts Manager) (40 Points)
Replied 19 July 2012

sir we are developer, a NRI has invested his money in our project under Assured return scheme, how we deduct TDS from Interest, which is to be paid to the NRI investor. please give suggestion.