Income Tax • Tax Deducted at Source • Non-resident payments
Section 194LB: TDS on Interest from Infrastructure Debt Funds
Section 194LB of the Income-tax Act, 1961 required deduction of tax when a qualifying infrastructure debt fund paid interest to a non-resident or foreign company. For payments under the Income-tax Act, 2025, the corresponding provision is Section 393(2), Table Serial No. 5.
1. Meaning and scope of Section 194LB
Under Section 194LB, where an infrastructure debt fund referred to in Section 10(47) pays income by way of interest to a non-resident person (other than a company) or a foreign company, the person responsible for payment must deduct income-tax. The provision was inserted by the Finance Act, 2011, with effect from 1 June 2011.
An infrastructure debt fund for this purpose is not simply any fund financing infrastructure. It must satisfy the statutory description and prescribed conditions associated with Section 10(47) of the 1961 Act. Under the 2025 Act, the relevant fund is described in Schedule VII, Table Serial No. 46.
Interest means income paid for the use of money or qualifying debt investment; the particular instrument and payer must satisfy the applicable statutory conditions. Payments to resident recipients do not fall under this specific non-resident withholding provision.
2. TDS rate, surcharge, cess and threshold
| Requirement | Section 194LB / corresponding 2025 Act rule |
|---|---|
| Qualifying income | Interest paid by a qualifying infrastructure debt fund |
| Eligible recipient | Non-resident other than a company, or foreign company |
| Basic statutory rate | 5% |
| Threshold | No minimum amount specified |
| Surcharge and cess | Apply as required by the relevant Finance Act and recipient category |
| Non-furnishing of PAN | Check applicable higher-withholding rules, including statutory exceptions |
The 5% rate is the rate specified in the substantive TDS provision. For non-resident payments, the amount ultimately withheld may also reflect applicable surcharge and health and education cess. An applicable Double Taxation Avoidance Agreement (DTAA) may affect the tax position, subject to documentation and statutory conditions. Do not assume that the treaty rate automatically applies without verification.
3. Time of deduction and TDS compliance
Tax is deducted at the earlier of credit or payment, including payment by electronic transfer, cheque, draft or another mode. Credit to a suspense or similar account should be assessed under the applicable deemed-credit rules.
- Verify the payer and recipient: confirm that the fund qualifies and that the beneficial recipient is a non-resident individual/entity other than an Indian-resident company, or a foreign company.
- Identify the gross interest: calculate the interest amount and the correct withholding rate, including surcharge, cess and any properly supported treaty claim.
- Deduct and deposit: deduct at the applicable event and deposit within the prescribed deadline.
- Report and certify: for deductions governed by the 1961 Act, the usual non-resident TDS statement was Form 27Q and the TDS certificate Form 16A. For payments governed by the 2025 Act, use the applicable 2026 rules, forms and e-filing utilities.
Failure to deduct, deposit or report correctly may attract interest, penalties and other consequences under the relevant law. Non-resident remittance documentation, including applicable Form 15CA/15CB requirements, should be evaluated separately where relevant.
4. Income-tax Act, 2025: provision applicable from 1 April 2026
For relevant TDS events arising on or after 1 April 2026, the corresponding provision is Section 393(2), Table Serial No. 5, Income-tax Act, 2025. It covers interest payable to a non-resident (other than a company) or foreign company by an infrastructure debt fund referred to in Schedule VII, Table Serial No. 46, and prescribes 5% TDS.
The Income Tax Department instructs deductors to quote the applicable 2025 Act table item for transactions under the new law rather than the repealed 1961 Act section number. For transactions spanning March and April 2026, determine which event occurred first, credit or payment, and apply the appropriate statutory framework.
5. Practical illustration
A qualifying infrastructure debt fund credits Rs. 8,00,000 interest to a foreign company. At the basic statutory rate of 5%, the tax component is Rs. 40,000 (Rs. 8,00,000 × 5%). Any applicable surcharge and cess must be considered in addition. If the interest is credited on 10 July and paid on 20 July, the deduction event is 10 July.
This is an illustrative basic-rate computation, not a final determination of withholding for a specific foreign recipient.
6. Section 194LB compared with related TDS provisions
| Provision | Principal subject |
|---|---|
| Section 194LB | Interest from a qualifying infrastructure debt fund to specified non-residents |
| Section 194LC | Certain interest on eligible foreign borrowings and bonds |
| Section 194LD | Certain interest on bonds and government securities to eligible foreign investors |
| Section 195 | Other sums chargeable to tax paid to non-residents |
7. Official law and guidance
- Income Tax Department: Section 194LB (1961 Act)
- Income Tax Department: Section 393 (2025 Act)
- Income Tax Department: TDS rate reference
- Income Tax Department: transition and TDS payment FAQs
- Official consolidated 1961 Act as amended by Finance Act, 2025 (PDF)
Frequently asked questions
What is the TDS rate for interest paid by an infrastructure debt fund to a non-resident?
The statutory rate is 5%, with applicable surcharge and health and education cess where required. Treaty relief and PAN-related provisions should be reviewed separately.
Is there a minimum threshold under Section 194LB?
No monetary exemption threshold is specified. TDS generally applies to qualifying interest from the first rupee.
When is tax deducted?
At the earlier of crediting the interest to the payee account, including a suspense account where applicable, or actually paying it.
Does Section 194LB cover interest paid to Indian residents?
No. It applies to non-resident persons other than companies and to foreign companies receiving qualifying interest from the specified infrastructure debt fund.
What provision applies from 1 April 2026?
Section 393(2), Table Serial No. 5, of the Income-tax Act, 2025 applies to the corresponding payments.
Legal note: The applicable law depends on the date of the credit/payment event and the recipient's circumstances. This overview is informational and should be checked against current legislation, rules, treaty provisions and official filing instructions before withholding.