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?
20 April 2010
But as per sec 194A (3)(vii) it is not applicable to Banks
27 July 2025
Good question! Here’s a clear breakdown:
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### 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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