Section 196D Under Income Tax Act

Foreign investments are highly essential to spice up the viability of any economy and India being a

 developing economy has become the destination to speculate for prospective investors across the world. The fast-growing equity markets are one main reason that draws foreign investors. the govt has introduced Section 196D under the revenue enhancement Act to produce lower tax rates for the income earned by foreign institutional investors. However, this section doesn’t lay down the law regarding the income derived from government securities or rupee-denominated bonds which are mentioned in Section 194LD. Section 196D states that each income earned by the foreign institutional investors on securities (as per Section 115AD) is taxable at 20% aside from the income received from the interest of securities.

Tax Deduction Under Section 196D

Under section 196D, somebody who pays any amount named in Section 115AD to a different person is chargeable for deducting tax at source. Tax is deducted either at the time of payment in cash, cheque, demand draft, or another mode; or, tax is deducted during the time of credit to the account of the payee, whichever is earlier.

Extract of Section 196D of revenue enhancement Act, 1961 Section 196D TDS on Income of foreign institutional investors from securities196D.

(1) Where any income in respect of securities remarked in clause (a) of sub-section (1) of section 115AD, not being income by way of interest observed in section 194LD, is payable to a distant Institutional Investor, the author for creating the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by the other mode, whichever is earlier, deduct income-tax thereon at the speed of twenty percent:

Provided that no such deduction shall be made in respect of any dividends stated in section 115-O.

(2) No deduction of tax shall be made of any income, by way of capital gains arising from the transfer of securities brought up in section 115AD, payable to a remote Institutional Investor.

Central Government Act

Section 196 within the Income- Tax Act, 1995

Interest or dividend or other sums payable to Government, bank, or certain corporations, no deduction of tax shall be made by a person from any sums payable to-

(i) the govt, or

(ii) the bank of India, or

(iii) a company established by or under a Central Act which is, under any law for the nonce in effect, exempt from income- tax on its income, or

(iv) an investment trust specified under clause (23D) of section 10, where such sum is payable to that by way of interest or dividend in respect of any securities or shares owned by it or during which it’s full beneficial interest, or the other income accruing or arising to that.

Computation Of Tax Deduction

Under Section 196D, the tax is deducted for a far-off Institutional Investor if the income is in respect of securities noted in Section 115AD. The deduction is formed at the speed of 20%. The deducted tax is going to be collected to account for the one that is accountable for the deduction. all and sundry who deduct or collect tax are going to be given an account number for this purpose. The collected tax must be deposited to the credit of the central government by making the payment in any one of the subsequent modes:

  • Branch of the bank of India
  • Any branch of banking company in India
  • Any branch of the notified public sector banks where taxation offices are situated

E-Payment Of Tax

All assesses who are subjected to compulsory audit under the revenue enhancement Act will make electronic payment of tax through the internet banking facility offered by the authorized banks. Taxpayers also can pay the tax by way of internet banking facilities.

Time Of Deposit

When Government Deducts Tax

When tax is deducted by or on behalf of the govt., the tax should be deposited within the cut-off date given below.

  1. If the tax is to be deposited by the assembly of any income-tax challan – Tax should be deposited on the identical day on which tax is deducted
  2. If the tax is amid an income-tax challan – Tax should be deposited by the top of the month during which the tax is deducted or before seven days

When the other person deducts tax

In the other case, the tax should be deposited within one week from the last date of the month within which the tax is deducted. However, taxes deducted in March is often deposited on or before April 30 after the top of the twelvemonth.

TDS Certificate

Every person deducting tax at source as per Section 196D is required to issue a quarterly certificate in Form No.16A.