Withholding tax

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HARDEEP KAUR (Querist)
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17 August 2012 whether withholding tax is applicable when we take buyers credit offer letter from HSBC BANK INDIA. PLEASE CLARIFY

CA Navin Jain

CA Navin Jain (Expert)
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17 August 2012 yes withholding tax is applicable subject to DTTA,

wHICH FOREIGN BRANCH OF HSBC BANK YOU HAVE TAKE BUYERS CREDIT?

HARDEEP KAUR

HARDEEP KAUR (Querist)
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17 August 2012 HSBC, MAURITIUS BRANCH

CA Navin Jain

CA Navin Jain (Expert)
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17 August 2012 Current rate of withholding tax is 20%

HARDEEP KAUR

HARDEEP KAUR (Querist)
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17 August 2012 % is o.k. but it not applicable when buyers credit lending is from HSBC, MAURITIUS BECAUSE WE HAVE DTAA WITH MAURITIUS. PLEASE INFORM IS THIS O.K.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2025 Good question! Here’s a clear explanation regarding withholding tax on buyer’s credit from HSBC Mauritius:

Buyer’s Credit and Withholding Tax
Buyer’s credit is a type of short-term loan/finance facility extended by a foreign bank to an importer.

When you pay interest on buyer’s credit to a foreign bank (like HSBC Mauritius), Indian tax law requires you to deduct TDS (withholding tax) on that interest payment.

Applicability of Withholding Tax for HSBC Mauritius
India and Mauritius have a DTAA (Double Taxation Avoidance Agreement) which generally reduces or eliminates withholding tax on interest payments.

Under the India-Mauritius DTAA, the withholding tax rate on interest income is usually 10% or lower, and sometimes it can be exempt depending on the nature of the payment and whether it qualifies for treaty benefits.

If your payment qualifies under the treaty, withholding tax may be reduced or exempted, provided you follow the due procedure.

What you should do:
Check the exact nature of the interest payment and whether it qualifies for reduced treaty rate or exemption.

Obtain Tax Residency Certificate (TRC) from HSBC Mauritius to claim treaty benefits.

Submit Form 10F and declaration as prescribed by Indian tax law to the Indian bank or payer.

If all documentation is in order, deduct TDS at the reduced treaty rate (likely 10%) or nil if exempted as per treaty.

If you do not provide TRC or follow the procedure, the default Indian TDS rate (20%) will apply.

So, to answer your query:
Yes, withholding tax is applicable, but the rate is subject to the India-Mauritius DTAA.

You cannot simply assume zero withholding just because Mauritius is a treaty country—you must follow the proper documentation procedure to avail the benefit.

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