Section 194LB of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on interest payments made to non-residents or foreign companies by Infrastructure Debt Funds (IDFs). Below is a detailed breakdown of its provisions:
1. Applicability of Section 194LB
✅ Covered Payments:
- Interest paid by an Infrastructure Debt Fund (IDF)registered under SEBI Regulations, 2011.
- Payments to:
- Non-resident individuals(not companies).
- Foreign companies.
❌ Exemptions:
- Payments to resident Indians(covered under other sections).
- Interest exempt under Section 10(47)(IDF’s own income).
2. TDS Rate & Deduction Rules
| PARAMETER | DETAILS |
| Rate (PAN Provided) | 5% (base rate). |
| Including Cess | 5.2% (5% + 4% Health & Education Cess). |
| PAN Not Provided | 20% (under Section 206AA). |
| Threshold | No minimum limit (TDS applies even on small amounts). |
| Timing | Deduct at the earlier of: |
- Credit to payee’s account.
- Actual payment (cash/cheque/transfer). |
Example:
- Interest Paid: ₹10 lakh to a non-resident individual.
- TDS (5%): ₹50,000 → Net Payment: ₹9.5 lakh.
3. Key Conditions
- IDF Registration: Must comply with SEBI Regulations, 2011.
- Tax Treaty Benefits: Lower TDS may apply under DTAA(e.g., 3% if treaty permits).
- No Section 197 Relief: Lower/Nil TDS certificates cannotbe used.
4. Compliance Requirements
- TDS Deposit: By the 7th of the next month(March: April 30) via Challan 281 5.
- TDS Return: File Form 27Q
- TDS Certificate: Issue Form 16Ato payee.
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
6. Impact on Payees
- Tax Credit: Deducted TDS can be claimed against final tax liability.
- AIS Reporting: Reflected in Annual Information Statement (AIS)under “Income from Other Sources”.
Key Points
🔹 5% TDS on IDF interest to non-residents/foreign companies (no threshold).
🔹 PAN Mandatory to avoid 20% deduction.
🔹 No DTAA override: Treaty rates apply if lower than 5%.
🔹 Quarterly Filing: Use Form 27Q for returns
