Section 196D - TDS on Income of foreign institutional investors from securities - Income Tax - Ready Reckoner - Income Tax

Section 196D :- TDS on Income of foreign institutional investors from securities Applicability and Rate of Interest Where any income in respect of securities referred u/s 115AD(1)(a) to a Foreign Institutional Investor has to deduct tax @20%, or; to a specified fund referred to in clause (c) of the Explanation to section 10(4D) has to be deduct tax @10% Plus surcharge, wherever applicable plus health and education cess@4%. However, where an agreement referred to in section 90(1) or section 90A(1) applies to the payee and if the payee has furnished a certificate referred to in section 90(4) or section 90A(4) , as the case may be, then, income-tax thereon shall be deducted @ 20% or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower . [Proviso inserted by Finance Act, 2021, w.e.f. 01-04-2021 ] No deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred u/s 115AD , payable to a Foreign Institutional Investor. Time of Deduction Tax to be deducted at the time of credit of such income to the account of the payee or at the time of payment thereof by any more, whichever is earlier. Meaning of specified term specified fund means, (i) a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate, (I) which has been granted a certificate of registration as a Category III Alternative Investment Fund and is regulated under the SEBI (Alternative Investment Fund) Regulations, 2012, made under the SEBI Act, 1992 or International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the International Financial Services Centres Authority Act, 2019; (II) which is located in any International Financial Services Centre; and (III) of which all the units other than unit held by a sponsor or manager are held by non-residents: The condition specified in this item shall not apply where any unit holder or holders, being non-resident during the previous year when such unit or units were issused, becomes resident under clause (1) or clause (1A) of section 6 in any previous year subsequent to that year, if the aggregate value and number of the units held by such resident unit holder or holders do not exceed 5% of the total units issued and fulfil such other conditions as may be prescribed; or (ii) investment division of an offshore banking unit , which has been (I) granted a certificate of registration as a Category-I foreign portfolio investor under the SEBI (Foreign Portfolio Investors) Regulations, 2019 made under the SEBI Act, 1992 and which has commenced its operations on or before the 31st day of March,2025; and (II) fulfils such conditions including maintenance of separate accounts for its investment division, as may be prescribed. Note: Dividend income is exempt under section 10(34) and therefore no TDS on such dividend. No TDS is to be deducted on LTCG or STCG on transfer of securities referred to in section 115AD payable to Foreign Institutional Investor. The enhanced rate of surcharge @25% and 37% of tax payable are not applicable in case of tax deductible u/s 196D on dividend income.