Old Provisions under the Income Tax Act, 1961:
For providing a concessional rate of TDS in respect of interest income arising from rupee denominated bonds or government securities, a separate S. 194LD is inserted. This section provides for concessional rate of TDS in respect of interest on such bonds and government securities payable to FIIs and QFIs during the period from 1.6.2013 to 31.5.2015. It may be noted that the provisions of S. 206AA would be applicable in respect of TDS u/s 194LD.
It provides that interest payments made to Foreign Institutional Investors (FIIs) and Qualified Financial Investors (QFIs) on or after June 1, 2013 but before May 31, 2015 on (i) rupee denominated bonds of an Indian company; and (ii) a Government security; would be subject to a tax at the rate of 5%, instead of the ordinary rate of up to 40% (FIIs were taxed at a lower rate of 20% on interest income). However, the lower withholding rate would be applicable only on interest paid on bonds whose interest rates do not exceed the rate as may be specified by the Central Government in this regard.
New Provisions as per Finance Bill, 2015:
In section 194LD of the Income-tax Act, in sub-section (2), with effect from the1st day of June, 2015, for the figures, letters and words “1st day of June, 2015”, the figures, letters and words “1st day of July, 2017” shall be substituted.
Clause 47 of the Bill, seeks to amend section 194LD of the Income-tax Act relating to Income by way of interest on certain bonds and Government securities.
Under the existing provisions contained in sub-section (2) of the aforesaid section, the interest income eligible for lower withholding tax rate of five per cent. as provided in sub-section (1) has been specified to be the interest payable on or after the 1st day of June, 2013 but before the 1st day of June, 2015.
It is proposed to amend aforesaid sub-section (2) to provide that the concessional rate of five per cent. withholding tax on interest payment in respect of investments in Government securities and rupee denominated corporate bonds shall now be available on interest payable before the 1st day of July, 2017.
This amendment will take effect from 1st June, 2015.
Concessional rate of tds @ 5% u/s 194LD shall now be available on interest payable till 30-06-2017.
The updated chart of tax Deduction at Source for FY 2015-16 or AY 2016-17 is as under:
|Section||Nature of Payment|
|194LD||Interest on certain Govt Bonds/Securities payable on or after 01-06-2013 but before 01-06-2017||5%||5%|
As Per Section 194LD, of the Income Tax Act, 1961-
Income by way of interest on certain bonds and Government securities.
194LD. (1) Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
(2) The income by way of interest referred to in sub-section (1) shall be the interest payable on or after the 1st day of June, 2013 but before the 1st day of June, 2015 in respect of investment made by the payee in—
(i) a rupee denominated bond of an Indian company ; or
(ii) a Government security:
Provided that the rate of interest in respect of bond referred to in clause (i) shall not exceed the rate as may be notified by the Central Government in this behalf.
Explanation.—For the purpose of this section,—
(a) “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;
(b) “Government security” shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(c) “Qualified Foreign Investor” shall have the meaning assigned to it in the Circular No. Cir/IMD/DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).