Applicability of 197A(1D) and Section 10(15) of Income Tax Act, 1961 to interest paid by IFSC Banking Unit (IBU)

==> picture [381 x 125] intentionally omitted <==

----- Start of picture text -----<br> cit<br>Circular No 26 / 2016<br>F.No. 275/26/2016-IT (B)<br>Government of India/ 8d Gta<br>Ministry of Finance/fea Aare<br>Department of Revenue/(trerea Faster)<br>Central Board of Direct Taxes/(eera Feaet HL ais)<br>North Block, New Delhi<br>4" July, 2016<br>----- End of picture text -----<br>

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

==> picture [400 x 406] intentionally omitted <==

----- Start of picture text -----<br> Section 197A ofthe Income-tax Act, 1961 provides the circumstances in which deduction of<br>tax at source is not required to be made under Chapter XVII of the Act. Sub-section (1D) of this<br>section provides that deduction is not required to be made by an Offshore Banking Unit on interest<br>paid on deposit made on or after 1.4.2005 by a non-resident or a person not ordinarily resident in<br>India, or on borrowing on or after 1.4.2005 from such persons. Clause (viii) of sub-section (15) of<br>section 10 provides that such interest will not be included in the total income. Offshore Banking Unit<br>locatedis defined in clause (u) of section 2 of the Special Economic Zones Act, 2005 as a branch ofa bank<br>section in a Special Economic Zone, which has obtained the permission under clause (a) of sub-<br>(1) of section 23 of the Banking Regulation Act, 1949.<br>2; Representations have been received by the Central Board of Direct Taxes for clarifying the<br>applicability of Section 197A(1D) and Section 10(15)(viii) of the Income-tax Act, 1961 in respect of<br>interest received from IFSC Banking Units (IBUs) set up in the Special Economic Zones. The matter<br>has been examined, and it is observed that IBUs are branches of Indian Banks or Foreign Banks<br>having presence in India, which are established in accordance with the RBI Scheme dated 1.4.2015,<br>in the International Finance Service Centers that are set up in within the Special Economic Zones, as<br>per Section 18 of the Special Economic Zone Act, 2005. Thus, the IBUs fulfil the necessary criteria<br>for being considered Offshore Banking Units as defined in clause (u) of section 2 of the Special<br>Economic Zones Act, 2005. ;<br>35 In view of the above, the Board hereby clarifies that in accordance with the provisions of<br>Section 197A.(1D) of the Income-tax Act, 1961, tax is not required to be deducted on interest paid by<br>such IBUs, on deposit made on or after 1.4.2005 by a non-resident or a person who is not ordinarily<br>resident in India, or on borrowings made on or after 1.4.2005 from such persons.<br>: ( Sand€ep Singh)<br>ww oe Under Secretary to the Govi. cf India<br>C, E-mail: sandeep.singh68@nic.inTele: 2309 4182<br>t ~-==-Copy To: cig<br>1 1. The Chairman, Members and officers of theCBDTofthe rank of Under Secretary<br>and above. _<br>te “2. OSD to Revenue Secretary<br>3. All Principal Chief Commissioners of Income-tax & all Pr. Director General of Income-tax with<br>4. the request to bring to notice of all officers. fara Prearera “rgxfel)<br>The Pr. Director General ofNADT, ian . ae Paeit—1 10085<br>----- End of picture text -----<br>

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.

| 5 Pe ( Sandeep kingh) Under Secretary to the Govt. of India Tele: 2309 4182 .. E-mail: sandeep.singh68@nic.in