Rate of tax applicable in respect of interest income in the case of foreign companies-Clarification regarding - Income Tax - 473/1986

Rate of tax applicable in respect of interest income in the case of foreign companies-Clarification regarding Circular No. 473 Dated 31/10/1986 To All Commissioners of Income-tax Sir, Subject: Rate of tax applicable in respect of interest income in the case of foreign companies-Clarification regarding. Under section 115A(1) of the Income-tax Act, 1961, income by way of interest received by a foreign company from Govt. or an Indian concern on moneys borrowed or debt incurred by the Govt. or the Indian concern in foreign currency, is chargeable to tax at the rate of 25 per cent. 2. Overseas corporate bodies with specified NRI shareholdings are allowed to invest their moneys in Non-Resident (External) Accounts as well as FCNR accounts. They are also allowed to invest in deposits of public limited companies. 3. A question has been raised regarding the rate of tax applicable in regard to the income by way of interest from such investment income. In this connection, it is clarified that if the overseas corporate body is a foreign company and if the investment (in NRE FCNR Accounts or in deposits of public limited companies) is made by way of remittance in foreign currency, then the provisions of section 115A(1)(ia) would apply and the rate of tax on the income by way of interest would be 25 per cent. of gross amount of such interest. For this purpose, the income by way of interest shall be computed without allowing any deduction in respect of any expenditure or allowance. 4. The contents of this letter may be brought to the notice of all the officers working in your charge. Yours faithfully, (Sd.) B.N. Dutta, Under Secretary to the Govt. of India.