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%.

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