In order to boost the foreign investment, the Government inserted Section 194LD of the Income Tax Act, 1961 and made effective from 1st June 2013. Section 194LD provided tax deduction at lower rate for interest income earned by a Foreign Institutional Investor or a Qualified Foreign Investor from the government securities or specified bonds.
The present article provides short note on provisions of section 194LD of the Income Tax Act, 1961.
Provisions of Section 194LD
Section 194LD states that –
- Any person paying income by way of interest to a Foreign Institutional Investor or a Qualified Foreign Investor is required to deduct TDS.
- Interest income on which TDS is deductible under section 194LD means –Interest payable on or after 1st June 2013 to 1st July 2020 in respect of investment made, by a Foreign Institutional Investor or a Qualified Foreign Investor, in a rupee denominated bond of an Indian Company or a Government Security.
- However, the proviso states that the rate of interest in respect of a rupee denominated bond of an Indian Company shall not exceed the rate as notified by the Central Government.
Time of tax deduction at source
The Deductor liable to deduct TDS under this section, shall deduct TDS either at the time of payment in cheque or draft or cash or any other mode or at the time of payment of credit of income to the account of the payee, whichever earlier.
Rate of tax deduction at source under section 194LD
The Deductor is liable to deduct TDS at the rate of 5%.
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