1) Who is responsible to deduct tax u/s 196D?

Any person responsible for making payment to Foreign Institutional Investors

2) Nature of Payment

Income in respect of securities referred to in section 115AD (not being interest referred to in section 194LD)

3) When to Deduct TDS under Section 196D?

At the time of credit of such income to the account of payee or at the time of payment, whichever is earlier.

For this purpose, ―payment‖ can be in cash or by issue of a cheque or draft of by any other mode.

TDS on Income of foreign institutional investors from securities

4) Rate of TDS under Section 196D

The rate of tax deduction u/s 196D is 20% (+ SC+H&E Cess)

5) Other key point related to Section 196D

No deduction shall be made in respect of capital gains arising from transfer of such securities.

Extract of Section 196D of Income Tax Act, 1961

196D. (1) Where any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD, not being income by way of interest referred to in section 194LD, is payable to a Foreign Institutional Investor, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof 78[by any mode], whichever is earlier, deduct income-tax thereon at the rate of twenty per cent.

79[***]

(2) No deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred to in section 115AD, payable to a Foreign Institutional Investor.

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