Tds on interest to foreign bank


28 December 2011  

Our company is making payment of ineterst on Buyers credit facility from Afrasia Bank Ltd., Malaysia. Afrasia bank don't have any PE in India.

I would like to know if we need to deduct TDS with following details:

1. Payment of ineterst is to Bank ( foreign)

2. The Bank have PAN

3. There is DTAA with Malaysia and Clause 2 of Article 11 says TDS @ 10%

4.  In this case as per section 195 the rate of TDS should be

  a. rates in force

5. As per Sec. 206AA rates shuold be as per income Tax Act (as the PAN is available) hence we have to refer to Sec. 194A as it is interest payment

6. Sec. 194A states if the payment of ineterst is to baking or financial institution (including foreign Bank as per Section 51 of BRA) no TDS should be done.

Does this means we need not deduct any TDS from the said payment.

Thanks in advance.

Lekhraj Gupta