TDS on Interest
This query is : Resolved
05 April 2010
Whether TDS is liable to be deducted on Interest paid on Foreign Currency loans taken from Foreign Banks?
27 July 2025
Good question! Here’s a clear breakdown:
---
### TDS on Interest on Foreign Currency Loans from Foreign Banks
1. **Section 195**:
* TDS is applicable on any **payments to non-residents**, including interest paid on foreign currency loans taken from foreign banks (which are non-resident entities).
* The rate of TDS will generally be **10%** (or as per the applicable DTAA—Double Taxation Avoidance Agreement).
2. **Section 194A(3)(vii)**:
* This section exempts TDS on interest paid by banks **to their depositors**.
* **This exemption applies only when the payer is a bank paying interest to depositors in India.**
* It **does not apply** to interest paid on loans from foreign banks or any foreign lender.
---
### Conclusion:
* If you are paying interest on foreign currency loans to **foreign banks (non-residents)**, **TDS under Section 195 applies**, and you should deduct TDS at the applicable rate.
* Section 194A exemption on banks **does not cover foreign currency loans taken from foreign banks**.
---
Let me know if you want help with exact TDS rates based on DTAA or compliance procedure!
---
### TDS on Interest on Foreign Currency Loans from Foreign Banks
1. **Section 195**:
* TDS is applicable on any **payments to non-residents**, including interest paid on foreign currency loans taken from foreign banks (which are non-resident entities).
* The rate of TDS will generally be **10%** (or as per the applicable DTAA—Double Taxation Avoidance Agreement).
2. **Section 194A(3)(vii)**:
* This section exempts TDS on interest paid by banks **to their depositors**.
* **This exemption applies only when the payer is a bank paying interest to depositors in India.**
* It **does not apply** to interest paid on loans from foreign banks or any foreign lender.
---
### Conclusion:
* If you are paying interest on foreign currency loans to **foreign banks (non-residents)**, **TDS under Section 195 applies**, and you should deduct TDS at the applicable rate.
* Section 194A exemption on banks **does not cover foreign currency loans taken from foreign banks**.
---
Let me know if you want help with exact TDS rates based on DTAA or compliance procedure!
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