TDS on payment of interest to foreign bank.

[Ashish Gupta]

Dear Friends, We have two queries in relation to TDS on payment of interest to Non Resident. 1. We have to make payment of Interest amount to Standard Chartered Bank, Singapore (SCB) on external commercial borrowing taken from Singapore branch. The said loan is arranged through our banker in India and in the arrangement with SCB there is one clause that interest should be paid without deducting TDS thereon. When we see Article 25 of DTAA with Singapore, there is a provision for “Avoidance of Double Taxation”. Clause 4 of the said Article provides that Indian tax paid, whether directly or by deduction, in respect of income from sources within India shall be allowed as a credit against Singapore tax payable in respect of that income. Thus according to the above provisions can we deduct TDS from the amount of interest and then remit net amount and provide them proof of TDS so that they can take credit in Singapore? 2. Further as per the recent amendment on TDS provisions, a person entitled to receive any sum on which tax is deductible under the Act shall furnish its PAN to the deductor. In case of failure in providing PAN to the deductor, the deductor is required to withhold taxes at the rate of 20%. As per DTAA rate of tax is 10% on interest when we brought said fact before them then they informed us to use PAN no. of their Indian branch. Kindly suggest can we use PAN of their Indian branch and if we use then Indian branch will be eligible to take credit not the Singapore? thanks & regards, Ashish Gupta

[Sameer Sah]

1. Ideally, yes. However, you should check under Singapore tax law what information they will require in order to claim a credit under Singapore tax law. 2. Here, you should simply use their Indian branch's PAN, as the Indian branch is not a separate company.

[Ashish Gupta]

Thanks Mr. Sameer.

AI Summary

TDS on interest: withhold tax and provide proof for foreign tax credit; use branch PAN if branch isn't separate. Where interest is payable to a nonresident bank, the payer may deduct tax at source and provide proof so the recipient can claim a foreign tax credit under the Double Taxation Avoidance provisions; the recipient must meet its domestic credit requirements. If the recipient does not furnish PAN, higher withholding applies, but the payer may use the PAN of the recipient's Indian branch where the branch is not a separate entity, which affects which taxpayer can claim the credit.