Circular No. 26/2016

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Circular No 26 / 2016
F.No. 275/26/2016-IT (B)
Government of India/ ANd Gta
Ministry of Finance/ fea atest
Department of Revenue/(letea Faster)
Central Board of Direct Taxes/(eeta Weaat AL ais)
North Block, New Delhi
4" July, 2016
Subject: Applicability of Section 197A(1D) and Section 10(15)(viii) of the Income-tax Act, 1961
to interest paid by IFSC Banking Units (IBUs) - Clarification regarding
Section 197A of the Income-tax Act, 1961 provides the circumstances in which deduction of tax at source is not required to be made under Chapter XVII of the Act. Sub-section (1D) of this section provides that deduction is not required to be made by an Offshore Banking Unit on interest paid on deposit made on or after 1.4.2005 by a non-resident or a person not ordinarily resident in
India, or on borrowing on or after 1.4.2005 from such persons. Clause (viii) of sub-section (15) of section 10 provides that such interest will not be included in the total income. Offshore Banking Unit is defined in clause (u) of section 2 of the Special Economic Zones Act, 2005 as a branch of a bank located in a Special Economic Zone, which has obtained the permission under clause (a) of sub-
section (1) of section 23 of the Banking Regulation Act, 1949.
2. Representations have been received by the Central Board of Direct Taxes for clarifying the applicability of Section 197A(1D) and Section 10(15)(viii) of the Income-tax Act. 1961] in respect of interest received from IFSC Banking Units (IBUs) set up in the Special Economic Zones. The matter has been examined, and it is observed that IBUs are branches of Indian Banks or Foreign Banks having presence in India, which are established in accordance with the RBI Scheme dated 1.4.2015, in the International Finance Service Centers that are set up in within the Special Economic Zones, as per Section 18 of the Special Economic Zone Act, 2005. Thus, the IBUs fulfil the necessary criteria for being considered Offshore Banking Units as defined in clause (u) of section 2 of the Special
Economic Zones Act, 2005. ;
3; In view of the above, the Board hereby clarifies that in accordance with the provisions of
Section .197A.(1D) of the Income-tax Act, 1961, tax is not required to be deducted on interest paid by such IBUs, on deposit made on or after 1.4.2005 by a non-resident or a person who is not ordinarily resident in India, or on borrowings made on or after 1.4.2005 from such persons.
. ( Sandeep Singh)
oe Under Secretary to the Govt. of india ww Tele: 2309 4182
el E-mail: sandeep.singh68@nic.in
| 1. The Chairman, Members and officers of the CBDT of the rank of Under Secretary and above. _|
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3. All Principal Chief Commissioners of Income-tax & all Pr. Director General of Income-tax with the request to bring to notice of all officers. [area Prazirera ‘Tafa
4. The Pr. Director General of NADT, — . of Peaeit—110035
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5. The Pr. Director General of Systems, ARA, Jhandewalan Extension, New Delhi
6. The Pr. Director General of Vigilance,
7. The ADG (PR,PP&OL). Mayur Bhawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per mailing list.
8. Comptroller and Auditor General of India.
9. ADG (Systems) for uploading on ITO website.
10. The Guard File.
{ Pc ( Sandeep (ia
Under Secretary to the Govt. of India
Tele: 2309 4182 ..
E-mail: sandeep.singh68@nic.in