Tds on interest paid to foreign co.
This query is : Resolved
16 February 2013
one of my client is producer company take a unsecured loan from foreign company, now the payment of interest is due in march, I want to know about TDS deduction.
The foreign company does not have any office in India.
The foreign company does not have any office in India.
17 February 2013
kindly refer the DTAA between India and the company's residence country .
Message likes :
1 times
17 February 2013
I presume that the FEMA guidelines have been followed before taking the unsecured loan.
The rate as per Income tax Act is 20.6%,however any beneficial provisions as per Treaty may apply.
Anuj
femaquery@gmail.com
The rate as per Income tax Act is 20.6%,however any beneficial provisions as per Treaty may apply.
Anuj
femaquery@gmail.com
Message likes :
1 times
21 February 2013
Sir, further I want to clear that This Indian company has taken ECB from company based at USA and company has completed all the ECB guidelines.
This USA based Company does not have any office in India.
Is TDS @20.60% or 15%(as per DTAA) or 0% as the foreign company have no PE in India.
This USA based Company does not have any office in India.
Is TDS @20.60% or 15%(as per DTAA) or 0% as the foreign company have no PE in India.
27 July 2025
Here’s a detailed response for your query about **TDS on interest paid to a foreign company** (which has no office or PE in India):
---
### Situation Recap:
* Indian Producer Company has taken an **unsecured loan (External Commercial Borrowing - ECB)** from a foreign company based in the USA.
* The foreign company **does not have any office or Permanent Establishment (PE) in India**.
* ECB guidelines have been followed.
---
### TDS Applicability:
1. **Section 195 of the Income Tax Act** governs TDS on payments to non-residents, including interest payments.
2. Since the payee is a foreign company (non-resident) **with no PE in India**, the interest paid will be treated as income **not attributable to any PE in India**.
3. **Rate of TDS:**
* **Domestic Rate:** Generally 20% plus applicable surcharge and cess (effective approx 20.6%) on interest paid to non-residents.
* **DTAA Rate:** India-USA DTAA provides a **reduced rate of 15%** on interest payments, subject to beneficial treaty provisions.
* **No PE Clause:** If the foreign company has **no PE in India**, the DTAA rate applies on interest, not domestic tax rates.
4. **Therefore:**
* TDS should be deducted at **15%** (plus applicable surcharge/cess) as per India-USA DTAA.
* If no PE exists, the payment is eligible for treaty benefits.
* If the treaty rate is 0% (rare for interest), then TDS would be nil, but under India-USA DTAA it's 15%.
---
### Important points:
* **FEMA Compliance:** Since ECB guidelines are followed, remittance is compliant with RBI/FEMA.
* **Documentation:** Ensure submission of Form 15CA & 15CB (CA certificate for DTAA benefit).
* **Tax Credit:** The foreign company can claim credit for the TDS deducted in India while filing their tax returns in their country.
---
### Summary:
| Condition | TDS Rate on Interest Payment | Explanation |
| -------------------------------- | --------------------------------------- | -------------------------------- |
| Foreign co. with no PE in India | 15% (as per India-USA DTAA) | Lower treaty rate applicable |
| If no DTAA or treaty not claimed | 20.6% (domestic rate) | Higher domestic TDS rate applies |
| Foreign co. has PE in India | Higher rate / Full tax on global income | Interest attributable to PE |
---
If you want, I can help you draft a concise advisory note or assist with TDS compliance documents related to this payment. Would that be helpful?
---
### Situation Recap:
* Indian Producer Company has taken an **unsecured loan (External Commercial Borrowing - ECB)** from a foreign company based in the USA.
* The foreign company **does not have any office or Permanent Establishment (PE) in India**.
* ECB guidelines have been followed.
---
### TDS Applicability:
1. **Section 195 of the Income Tax Act** governs TDS on payments to non-residents, including interest payments.
2. Since the payee is a foreign company (non-resident) **with no PE in India**, the interest paid will be treated as income **not attributable to any PE in India**.
3. **Rate of TDS:**
* **Domestic Rate:** Generally 20% plus applicable surcharge and cess (effective approx 20.6%) on interest paid to non-residents.
* **DTAA Rate:** India-USA DTAA provides a **reduced rate of 15%** on interest payments, subject to beneficial treaty provisions.
* **No PE Clause:** If the foreign company has **no PE in India**, the DTAA rate applies on interest, not domestic tax rates.
4. **Therefore:**
* TDS should be deducted at **15%** (plus applicable surcharge/cess) as per India-USA DTAA.
* If no PE exists, the payment is eligible for treaty benefits.
* If the treaty rate is 0% (rare for interest), then TDS would be nil, but under India-USA DTAA it's 15%.
---
### Important points:
* **FEMA Compliance:** Since ECB guidelines are followed, remittance is compliant with RBI/FEMA.
* **Documentation:** Ensure submission of Form 15CA & 15CB (CA certificate for DTAA benefit).
* **Tax Credit:** The foreign company can claim credit for the TDS deducted in India while filing their tax returns in their country.
---
### Summary:
| Condition | TDS Rate on Interest Payment | Explanation |
| -------------------------------- | --------------------------------------- | -------------------------------- |
| Foreign co. with no PE in India | 15% (as per India-USA DTAA) | Lower treaty rate applicable |
| If no DTAA or treaty not claimed | 20.6% (domestic rate) | Higher domestic TDS rate applies |
| Foreign co. has PE in India | Higher rate / Full tax on global income | Interest attributable to PE |
---
If you want, I can help you draft a concise advisory note or assist with TDS compliance documents related to this payment. Would that be helpful?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Notice from IT DEPTT IF FD AMOUNT EXCEEDS 10 LACS
- GST payable under RCM
- Applicablity on tds
- Unable to generate and save json file for updated return
- GSTR9- ITC
- Regarding TDS not deducted on rent
- Which SAC code should be selected??
- Audit of F and O T/O
- LTCG offset against property buy
- Tax audit & Switching from Presumptive taxation
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
