tds on interest to foreign banks

Ms.Pallavi Vohra

Your question is not clear.  Are you talking of interest paid to Indian Branches of Foreing Banks or interest paid on loan obtained from Non Resident Foreign Banks.

Best Wishes

Sathikonda

SO FAR I HAVE UNDERSTOOD YOUR QUESTION ...YOU WANT TO KNOW WHETHER TAX IS TO BE DEDUCTED ON INTEREST PAYMENT MADE TOWARDS LOAN INTEREST  FOREIGN BANKS ....

 TAX IS NOT DEDUCTIBLE ON PAYMENT OF INTEREST ON  LOAN TAKEN FROM  BANKS

 My question is for interest payment to non resident foreign banks.

 Mr. Sanjay how can we justify this..............means can we say that as  a like income is not chargeable to tax in India???

Ms.Pallavi Vohra

First of all it has to be determined whether the interest paid to non-resident foreign banks is taxable in India? To determine the matter please make a list of answers by going through the section 5, section 9 and section 195 and also DTAAs with the concerned countries.  Then you will get the clarification.

Best Wishes

Sathikonda

INCOME IS DEFINATELY CHARGEABLE TO TAX IN INDIA ......TAXATION OF INCOME OF THE FOREIGN BANKS  OR FOR THAT MATTER INDIAN BANKS  IS A DIFFERENT MATTER ALTOGETHER... IT HAS DIFFERENT PROCEDURE TOOO

FOREIGN  OR  FOR  THAT   MATTER INDIAN BANKS TOO  ARE TAXED FOR THE PROFITS ....BUT TAX IS NOT DEDUCTED ON PNTEREST PAID TO THEM FOR THE LOAN ...

IF YOU ARE STILL NOT SATISFIED ..WRITE BACK TO ME....

Mr.Sanjay Kumar

Please enlighten me on the issue of  "Tax is not do be deducted at source on interest paid to Non Resident Foreign Banks on the loan obtained by an Indian Company/Firm".

Anticipating an early reply from you,

Best Wishes

Sathikonda

Ms. Pallavi Vohra

Please let me know  to which Non-Resident Foreign Bank the interest has to be paid.  I mean in which country the Bank is situated?

Best Wishes

Sathikonda

Mr Sanjay,

Thanks for immediate reply.Actually by like income i meant interest income of Banks i.e. as TDS is not deductible on interest payment to Indian Banks or to Indian Branches of foreign banks can we say interest payment to Foreign bank is also exempt from TDS.

But what is confusing me is :As Interest payment to Indian Branches of foreign banks are specifically exempted, does it implies that other branch of foreign banks are not covered here and we require TDS for that?

Mr. Sathikonda,

It is a Germany Based Bank.

Ms.Pallavi Vohra

I am herewith attaching document containing agreement between Government of Republic of India and Govrnment of the Federal Republic of Germany for avoidance of double taxation.

Ms.Pallavi Vohra

Now please

(i) go through section 9 of the income-tax act to come to a concusion whether the receipient of the interest has a business connection either directly or indirectly in India.

(ii) go through Article 5 of the Agreement to come to a conclusion that the receipient of the interest is having a permanent establishment in India

(iii) go through Article 11 of the Agreement to come to a conclusion whether the impugned interest is taxable in India (the rate of tax is also fixed in this article)

(iv) go through sub-section (6) of section 195 and follow the procedure as contemplated therein

If you cannot come to a conclusion based on the facts and in the circumstances of the case pleasse approach AAR to determine the matter.  You will be in the safe zone then.  You will not be a defaulter.

Best Wishes

Sathikonda