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 .
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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
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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?
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