5% TDS on interest payable by Indian Companies to Foreign Companies - Section 194LC
THE Finance Act, 2012 introduced section 194LC in the Income Tax Act with effect from 1st July 2012. This section provides for lower withholding tax at the rate of 5% on interest payments by Indian companies on borrowings made in foreign currency by such companies from a source outside India. There are principally two modes of borrowing which are covered, subject to approval of the Central Government:
1. Monies borrowed under a loan agreement
2. Long term Infrastructure Bonds
The rate of interest on such borrowings, for the purpose of eligibility under the section 194LC, shall be as approved by the Central Government.The lower rate of withholding tax is for monies borrowed or bonds issued during the period from 1.7.2012 to 30.6.2015.
Instead of giving approval in each case, as it would entail avoidable compliance burden on the borrower/issuer of bond, the Government has decided to give a general approval in respect of the loan agreements and issue of long-term infrastructure term bond by Indian companies - subject to certain conditions.
CBDT Circular No. 7/2012; Dated September 21, 2012