Withholding Tax: Foreign Branches of Indian Banks

[Sunil Maloo]

Respected members,

Topic is of withholding tax on interest payments to Foreign Branches of Indian Banks on ECB Borrwings. Following are the burning issues:-

1. What would be the residential status of "Foreign Branches of Indian Banks"?
2. Whether TDS is applicable u/s 195 or will be covered under the exemptions of section 194A?

Kindly share your view with the legal supporting (if any)...

Thanks & Regards...!!!

[ashutosh majumdar]

(i) A foreign branch of an Indian bank will continue to be a domestic company. The branch is not a separate entity (see the 5 member Special Bench judgement in Sumitomo Bank);

(ii) S. 194A(3) (iii) confers an exemption to income credited or paid to any banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies. The foreign branch of an Indian bank will qualify for this exemption.

[Sunil Maloo]

Thanks Ashutosh Majumdar Sir...We were also of the same view, your observation further supported it.

[mitalidas]

Regarding your query, I am facing the same predicament too. About the first question regarding the status of branches of Indian banks in foreign countries, I have managed to find the answer. Any Indian bank branch which is located on foreign shores is considered to be an Indian branch by the IT Department and the same rules that would apply to a branch here would apply to a branch there. But for the second question even I am awaiting an answer. If you get to know please post.

Regards
Mitali Das