Amended and updated notes on section 194LD 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 on certain bonds and Government securities.
Chapter XVII (Sections 190 to 234G) of the Income Tax Act 1961 deals with the provisions related to collection and recovery of tax. Section 194LD of IT Act 1961 provides for Income by way of interest on certain bonds and Government securities.
Recently, we have discussed in detail section 194LC (Income by way of interest from Indian company) of IT Act 1961. Today, we learn the provisions of section 194LD of Income-tax Act 1961. The amended provision of section 194LD 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 194LD 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-194LD: Income by way of interest on certain bonds and Government securities
Section 194LD(1) of Income Tax Act
Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
Section 194LD(2) of Income Tax Act
The income by way of interest referred to in sub-section (1) shall be the interest payable,—
(a) on or after the 1st day of June, 2013 but before the 1st day of July, 2023 in respect of the investment made by the payee in—
- (i) a rupee denominated bond of an Indian company; or
- (ii) a Government security;
(b) on or after the 1st day of April, 2020 but before the 1st day of July, 2023 in respect of the investment made by the payee in municipal debt securities:
Provided that the rate of interest in respect of bond referred to in sub-clause (i) of clause (a) shall not exceed the rate as the Central Government may, by notification in the Official Gazette, specify.
[Sub-section(2) of section 194LD has been substituted w.e.f. 01.04.2020 by the Finance Act 2020]
Explanation: For the purpose of this section,—
(a) “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;
(b) “Government security” shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(ba) “municipal debt securities” shall have the meaning assigned to it in clause (m) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
[Clause(ba) of explanation of section 194LD has been inserted w.e.f. 01.04.2020 by the Finance Act 2020]
(c) “Qualified Foreign Investor” shall have the meaning assigned to it in the Circular No. Cir/IMD/DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).