The Income Tax department on Wednesday said that concessional rate of tax of 5 per cent shall continue for certain interest income of foreign portfolio investors.
Clarifying on reports which said that concessional withholding tax rate of 5 per cent on interest income of FPIs has been withdrawn, the Central Board of Direct Taxes (CBDT) said there is no change in the rate of tax chargeable.
"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 in a statement.
While Section 115AD of the Income-tax Act contains provisions for taxation of income of FPIs, Section 194LD deals with withholding tax on 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 per cent tax before crediting interest to the FPI.