TDS on Interest

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Rachit

Rachit (Querist)
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05 April 2010 Whether TDS is liable to be deducted on Interest paid on Foreign Currency loans taken from Foreign Banks?

Zeeshan

Zeeshan (Expert)
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05 April 2010 yes as per section 195. rate will be 10%

Rachit

Rachit (Querist)
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20 April 2010 But as per sec 194A (3)(vii) it is not applicable to Banks

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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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.

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### 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**.

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Let me know if you want help with exact TDS rates based on DTAA or compliance procedure!

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