Section 194LC: TDS on income by way of interest from an Indian Company or a business trust

With effect from 1^st July 2012, section 194LC was incorporated into the Income Tax Act, 1961. The section deals with TDS deduction on income by way of interest from an Indian Company or a business trust and the provisions relating to the same has been explained in the current article.

Basic applicability of Section 194LC –

The basic provisions of section 194LC are narrated hereunder –

• The Indian Company or a business trust paying interest income to a non-resident, not being a company, or to a foreign company is liable to deduct TDS.
• Interest income payable by the Indian Company or the business trust on the following is covered under section 194LC –
  • Interest in respect of money borrowed by the Indian Company or the business trust in foreign currency from a source outside India –
    • Under a loan agreement between 1^stJuly 2012 to 1^st July 2020.
    • By issuing long term infrastructure bonds between 1^stJuly 2012 to 1^st October 2014.
    • By issuing long term bond including long term infrastructure bonds between 1^stOctober 2014 to 1^st July 2020.
  • Interest in respect of money borrowed by the Indian Company or the business trust in foreign currency from a source outside India by way of issue of rupee denominated bond before 1^stJuly 2020.
  • To the extent, the interest income does not exceed the amount of interest calculated at the rate approved by the Central Government.

Time of TDS deduction –

The Deductor is liable to deduct TDS within earlier of the below mentioned dates –

• At the time of payment thereof in cheque or cash or draft or any other mode of payment; or
• At the time of credit of interest income to the account of the payee.

Rate of deduction of TDS –

The Deductor is liable to deduct TDS @ 5%. In addition to the same, the Education Cess and SHE Cess is to be added to the base rate. Further, if the Surcharge gets applicable the same is also to be added.

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