Amended and updated notes on section 194LC of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to Income by way of interest from Indian company.
Chapter XVII (Sections 190 to 234G) of the Income Tax Act 1961 deals with the provisions related to collection and recovery of tax. Section 194LC of IT Act 1961 provides for Income by way of interest from Indian company.
Recently, we have discussed in detail section 194LBC (Income in respect of investment in securitization trust) of IT Act 1961. Today, we learn the provisions of section 194LC of Income-tax Act 1961. The amended provision of section 194LC is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 194LC of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India.
Section-194LC: Income by way of interest from Indian company
Section 194LC(1) of Income Tax Act
Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making the payment, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent:
Provided that in case of income by way of interest referred to clause (ib) of sub-section (2), the income-tax shall be deducted at the rate of four per cent;
[Proviso of sub-section(1) of section 194LC has been inserted w.e.f. 01.04.2020 by the Finance Act 2020]
Section 194LC(2) of Income Tax Act
The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust,—
(i) in respect of monies borrowed by it in foreign currency from a source outside India,—
- (a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2023; or
- (b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or
- (c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2023,
as approved by the Central Government in this behalf; or
(ia) in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2023, or
(ib) in respect of monies borrowed by it from a source outside India by way of issue of any long-term bond or rupee denominated bond on or after the 1st day of April, 2020 but before the 1st day of July, 2023, which is listed only on a recognised stock exchange located in any International Financial Services Centre, and
[Clause(ib) of sub-section(2) of section 194LC has been inserted w.e.f. 01.04.2020 by the Finance Act 2020]
(ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment.
Explanation: For the purpose of this section—
(a) “foreign currency” shall have the meaning assigned to it in clause (m) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “specified company” means an Indian company;
(c) “International Financial Services Centre” shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(d) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.
[Clause (c) and clause (d) of explanation of section 194LC has been inserted w.e.f. 01.04.2020 by the Finance Act 2020]