What is WHT (Withholding Tax) ?
Under Sec 195 of Income Tax Act 1961, Tax is required to be deducted on the interest amount paid by the Indian corporate to overseas lenders (bank / suppliers) on the loans taken.
Why is it a deterrent ?
Rates charged by overseas lenders are net of taxes; tax paid is the additional cost that needs to be borne by the borrower
Impact on Importers ?
- Withholding Tax is paid as per Income Tax Act, 1961 which varies from country to country as per DTAA (Double Taxation Avoidance Agreement) between India and the lender’s country. There 83 countries where India has DTAA. One of the condition to use DTAA rate is that lending institution should have an Indian Pan Card.
- When foreign bank quote for buyers credit they quote as net of withholding tax. Thus one needs to do grossing up ** interest at the time of calculating WHT (example given below).
- 7.5% Withholding tax on Interest payment on funds arranged from Banks based out Mauritius. (Refer India Mauritius Double Taxation Avoidance Treaty: Page 9, Article 11 3(C))
- No Withholding tax on loans raised from overseas branch of Indian bank
Process flow of payment of Withholding Tax
- First check the country from which buyer’s credit is to be made available to finalize rate of TDS (Refer link: countrywise double taxation summary chart ).
- Deposit the tax through challan no. 281 (nature of payment 195).
- Get Form 15CB issued from Chartered Accountant (CA) for the buyers credit interest payment.
- Submit online Form 15CA based using form 15CB provided by CA.
- Along with Form A2 submit Form 15CA and Form 15CB to Authorised Dealer (AD Bank) on or before due date of making payment for buyers credit interest.
- File Quarterly return of withholding tax through Form No. 27Q (Section Code: 195).
- AD Bank forwards a copy of document to Assessing officer / Income Tax Department.
Note:
- If DTAA & PAN of buyers credit providing bank is available, then as per DTAA .
- If no DTAA or PAN, then @ 20% (see section 206 AA of Income Tax Act).
- Withholding Tax rates may be limited by Application of a tax treaty. The surcharge and education cess will not apply where the withholding tax rate is limited by a tax treaty.
Important Related Links
- Revised Form 15CA Format
- Revised Form 15CB Format, (PDF), Excel Format of Revised Form 15CB
- NOTIFICATION 67/2013 [SO 2659(E)] : Income-tax (Fourteenth Amendment) Rules, 2013 – Substitution of Rule 37BB and Form Nos. 15CA and 15CB Dated : 02-09-2013
- CBDT-Substitution of Rule 37BB and Form 15CA-15CB: Dated: 05-08-2013
- Income Tax Circular on Form 15CA and CB
- Procedure for furnishing information in Form 15CA and Form 15CB
- Form 15CA (Online Filling)
- Form 15CB (Format for Certificate)
- Online payment of TDS of Withholding Tax under Challan 281 (nature of payment 195)
- Form No. 27Q : Format used to file return of withholding tax on quarterly basis
- India Mauritius Double Taxation Avoidance Agreement (DTAA)
- Country-wise Double Taxation Summary Chart
- Countrywise DDTA Agreements Copy
- Form A2
- Section 195
- Section 115A
- Section 194LC
Example
For example: Withholding tax is 10% of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bonafide banking or financing business.
To explain you mathematically:
Buyers Credit Foreign Bank : If WHT is 10% than,
BC Amount: $100000, Libor: 1%, Margin: 1% (net of WHT) , Tenure: 180 days, USD / INR: 50
Net Interest Amount = $ 1000 ($100000*2%*(180/360)
Gross Interest Amount = $1111 ($1000* (100/90)
Withholding tax = $ 111 = Rs. 5550
Grossed up margin in % : 1.22% pa ($1111 / $100000 * 2)
* Note: Above content is collected from various sources. Request to consult a tax expert before using the same.
** As per Income Tax Act 1961: Sec 195A. [In a case other than that referred to in sub-section (1A) of section 192, where under an agreement] or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.]
Buyer's Credit & Supplier's Credit 
Sir, your above article is very precise in terms of clarity, but in this you have noted that “No Withholding tax on loans raised from overseas branch of Indian bank”, is there any settled legal / judicial position in this regard in form of any judgment / AAR etc?
your view will be highly appreciated. Thanks
Information provided in the above article is based on bare act. I did try to check on on judgment / ARR but was not able to find one.
Sir can you quote the section of the bare act in this regard.because i am facing same kind of of problem.
Refer Section 195 of Income Tax Act for further details.
Please let us know the Interest that we have to pay on DELAY in paying Witholding Tax @ 10% till 29/03/2013 on Rs.1205074/- in indian rupee terms(GBP 14,387.22) on the Buyers Credit Payment of Interest on 01/03/2013 we paid to Standard Chartered Bank UK in the recent deal via Saraswat Bank Ltd. Is there any other PENALTY that we have to pay the GOI?
Delay payment of Withholding Tax will attract 1.5% interest per month on tax amount for the delayed tenure.
Is the penal interest cumulative or straight calculation
Delay in deduction of Withholding Tax will attract Interest payment of 1% per month at simple interest on tax amount for the delayed part or whole of the month.
For e.g. Due date of Buyers Credit repayment with interest is 10th January. Withholding tax amount is Rs 5000 and the due date of Interest repayment and Deduction of Withholding Tax will also be 10th January. However the TDS was deducted on 5th May. Then the interest payable is Rs 5000 x 1% p.m. x 5 months = Rs 250 (from the month of January to the month of May).
Delay in payment of Withholding Tax after deduction will attract Interest payment of 1.5% per month at simple interest on tax amount for the delayed part or whole of the month.
Continuing the above example Withholding tax amount is Rs 5000 was deducted on 5th May; so the due date of payment of Withholding Tax is 7th June. However the challan was paid on 31st July. Then the interest payable is Rs 5000 x 1.5% p.m. x 3 months = Rs 225 (from the month of May to the month of July).
Kindly refer Section 201A of Income Tax Act, 1961.
If no tds is deductible on interest payment of buyers credit, whether it is required to file form 27Q
Is WHT @ 20% is applicable of Buyers Credit taken from Citi Bank Nassau through arranger Citi Bank India..
Before we can answer the question of what rate is applicable, one needs to check whether Citi Nassau is a subsidiary or branch. Incase it is subsidiary, 20% WHT will be become applicable as there is no DTAA between India and Bahamas. Incase of branch office, DTAA of USA will become applicable as Citi Bank is US tax resident and thus 10% WHT will become applicable. In order to avail low WHT rates Citi Bank has to provide you with tax residency certificate and pan card copy.
When repayment is done with interest. i.e in the give example 101000/- in 15 cb /ca only interest amount need to be entered or full amount at various places.
Only for Interest amount.
Hello Sir
If the Buyers Credit is from Foreign Bank which is non Resident but having PAN card, then is WHT applicable or Section 9 can exempt them?
Or will have to look for DTAA for lower rate.
As mentioned in above article, incase of Foreign Bank
1. You will have to check for Pan Card and Tax Residency Certificate of Foreign Bank
2. If both the above is available, DTAA for lower rates.