With effect from 1st 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 1stJuly 2012 to 1st July 2020.
      • By issuing long term infrastructure bonds between 1stJuly 2012 to 1st October 2014.
      • By issuing long term bond including long term infrastructure bonds between 1stOctober 2014 to 1st 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 1stJuly 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.

Also Read-

Particulars
TCS – Tax Collection at Source – A Complete Guide
TDS Rate Chart for Financial Year 2019-2020
Section 192 – TDS on Salary
Section 192A – TDS on Premature withdrawal from EPF
Section 193: TDS on Interest on Securities
Section 194 – TDS on dividend
Section 194A: TDS on interest other than interest on securities
Section 194B and Section 194BB – TDS
Section 194C – TDS on Contractors
Section 194D – TDS on insurance commission
Section 194DA – TDS in respect of Life Insurance Policy
Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association
TDS under Section 194EE and Section 194F
Section 194G TDS on Commission on Sale of Lottery Tickets
Section 194H – TDS on Commission or Brokerage
Section 194I of Income Tax Act, 1961 – TDS on Rent
Section 194IA TDS on transfer of immovable property
Section 194IB – TDS on Rent paid by Individual / HUF
Section 194LA: Payment of Compensation on acquisition of certain immovable property
TDS under Section 194LB, 194LBA, 194LBB and 194LBC
Section 194LD TDS on income by way of interest on certain bonds and Government Securities
Section 194J TDS on Fees for Professional or Technical Services
Section 194N – TDS on Cash Withdrawals
Section 194M: TDS on Payment of certain sum by certain Individual / HUF
Section 195 TDS on payment of any other sum to a non-resident
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