Income Tax

CBDT issues clarification over debt interest income of FPIs

CBDT issues clarification on the continuation of the concessional rate of tax on interest income of FPIs. It has been clarified that the concessional rate of 5% will continue to be applicable to certain interest income of FPIs. Press release issued on the same today.

The Income Tax Department has said that foreign portfolio investors (FPIs) will continue to enjoy five percent withholding tax on debt interest income. 

The clarification by the Central Board of Direct Taxes (CBDT) came on Wednesday after a few reports claimed that the concessional withholding tax rate of 5 percent on interest income of FPIs has been withdrawn. The CBDT confirmed recently that the five percent tax rate on interest income of FPIs will see no change.

Informing about the clarification Income Tax India tweeted, “CBDT issues clarification on the continuation of concessional rate of tax on interest income of FPIs. It has been clarified that the concessional rate of 5% will continue to be applicable to certain interest income of FPIs. Press release issued on the same today (Wednesday).”

“It is hereby clarified that there is no change in the said provision even after amendment of section 115AD vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and the concessional rate of tax of 5% shall continue to be applicable for interest income referred to in section 194LD of the Act,” the CBDT said.

While Section 115AD of the Income-tax Act contains provisions for taxation of income of FPIs, Section 194LD deals with withholding tax on the income of a Foreign Institutional Investor or a Qualified Foreign Investor, from interest on certain bonds / Government Securities.

The issuer of the debt instrument has to withhold 5 percent tax before crediting interest to the FPI.

TaxClue Team

Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building. TaxClue is a team of young professionals. We started in December 2016 with the mission of knowledge sharing. TaxClue would like to hear your valuable suggestion. Please write to our editorial team at [email protected]

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