TDS on Interest Paid to Overseas Bank

Following points to be considered while deduct TDS on Interest on loan taken from overseas Bank:-

1.      Residential Status of Overseas Branch

2.      Rate under sec 195

3.      Rate of TDS mentioned under DTAA

Whether TDS is deducted or not in the following cases:-

1. If we have paid Interest on loan taken from PNB Kabul Branch;-

Since PNB is resident therefore provision under sec 195 shall not applicable and sec 194A is also not applicable since PNB is Banking Company.

Hence no need to deduct TDS.

2.  If we have paid interest on loan taken from HSBS Mauritius :-

Since HSBC is NRI and established under the Mauritius Bank Regulations, Therefore sec. 195 is applicable, further we also check if there is any DTTA with Mauritius, if there is DTTA between Mauritius then we considered the rate of TDS which is lower under DTAA or Sec 195.

Under the DTAA between Mauritius if loan has been taken from any bank which is establish under foreign bank regulation of financial institution then rate of TDS on interest in Nil.

Hence, HSBC Bank is established under foreign bank regulation therefore no needs to deduct TDS.

Noted:- Under the DTTA if loan has been taken from overseas bank which is established under foreign bank regulation of financial institution then Rate of TDS on Interest on loan will be either of nil or lower rate.

CA NAVIN JAIN

Manager ( Finance & Accounts)

B.com, ACA