Foreign Bank having Branch in India can claim Nil Deduction Certificate for Interest on securities covered under s. 193 of IT Act: CBDT [Read Notification]

The Central Government today notified that nil Deduction Certificate under section 29B of the Income Tax Rules cannot be granted to a foreign Bank having a branch in India in case of interest on securities covered under section 193 of Income Tax Act.

Section 195 of the Income Tax Act provides for collection tax at source on Non-resident payments. This section identifies the tax rates and deductions on business transaction with a non-resident from a day –to-day basis.

Under Section 195, the income is chargeable under Income Tax Act. Any sum is charged and the certificate for remittance is mandatory.

Rule 29B provides for application for certificate authorizing receipt of interest and other sums without TDS.

As per clause (1) of the Rule, any person entitled to receive any interest, or other sum, on which income-tax has to be deducted under sub-section (1) of section 195 may, if he fulfils the conditions specified in sub-rule (2), make an application for the grant of a certificate under sub-section (3) of section 195 authorising him to receive without deduction of tax under sub-section (1) of that section any such income as is specified hereinbelow, namely :—

1. where the person concerned is a banking company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, and which carries on operations in India through a branch, any income by way of interest, not being “interest on securities”, or any other sum, not being dividends;
2. in the case of any other person who carries on a business or profession in India through a branch, any sum, not being interest or dividends,

It also provides that in so far as such interest or other sum is receivable by such branch on its own account and not on behalf of its head office or any branch situated outside India, or any other person.

The current notification stated that the words “interest on securities” would not include interest payable on securities referred to in proviso to section 193.

Section 193 applicable to interest on certain specific securities from which tax has to be deducted at the time of payment or credit to the books of accounts whichever is earlier. 10% TDS is deductible I case of such securities.

Read the Full Text of the Notification Below