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SECTION 115A l TAX ON DIVIDENDS, ROYALTY AND
TECHNICAL FEES IN THE CASE OF FOREIGN COMPANIES

732. Interest income in the case of foreign companies – Rate of tax applicable

1. Under section 115A(1), income by way of interest received by a foreign company from  Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency, is chargeable to tax at the rate of 25 per cent.

2. Overseas corporate bodies with specified non-resident Indian shareholders are allowed to invest their moneys in Non-resident (External) (NRE) Accounts as well as Foreign Currency Non-Resident Accounts. They are also allowed to invest in deposits of public limited companies.

3. A question has been raised regarding the rate of tax applica­ble in regard to the income by way of interest from such invest­ment income. In this connection it is clarified that if overseas corporate body is a foreign company and if the invest­ment in NRE and FCNR Accounts or in deposits of public limited companies is made by way of remittance in foreign currency then the provisions of section 115A(1)(ia ) would apply and the rate of tax on the income by way of interest would be 25 per cent of gross amount of such interest. For this purpose the income by way of interest shall be computed without allowing any deduction in respect of any expenditure or allowance.

Circular : No. 473 [F.No. 478/33/86-FTD], dated 29-10-1986.

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Category : Income Tax (25319)
Type : Circulars (7531) Notifications/Circulars (30522)

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