Mechanism: An Indian company/business trust deducts 5% (lower for IFSC-routed borrowing) on qualifying ECB/long-term/rupee-bond interest paid to a non-resident, matching section 115A and subject to treaty relief.
Litigation profile: Sparse. Disputes concern eligibility conditions, not principle — the candour rule applies.
A. SECTION COMMENTARY
Section 194LC provides a concessional withholding regime for interest paid by an Indian company or a business trust to a non-resident or foreign company on monies borrowed in foreign currency under a loan agreement or by way of long-term bonds (including rupee-denominated bonds) within the approved limits and periods. The rate of deduction is five per cent (with a further reduced rate for monies raised through, or bonds listed on, an International Financial Services Centre exchange). It is the principal inducement for external commercial borrowing — a low, near-final withholding rate intended to lower the cost of foreign debt for Indian issuers.
Part of the concessional non-resident code
Section 194LC is read with sections 194LB (infrastructure debt funds) and 194LD (rupee bonds and Government securities held by FIIs/QFIs) as the concessional-withholding family for non-resident lenders, and with section 115A which fixes the corresponding concessional charge. Its application depends on the borrowing satisfying the approval, limit and period conditions and on the lender's non-resident status; the deduction is subject to any more beneficial rate under a tax treaty (section 90).
Why authority is sparse — candour
The provision is concessional, conditional and compliance-oriented; the disputes it generates are about eligibility conditions (approval, period, rate), not about contested principle, and there is no body of merits authority on the section itself. In candour, it is applied from its terms read with section 115A and the general chargeable-sum and treaty principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LC. (1) Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making 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 issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent:
Provided that in case of income by way of interest referred to clause (ib) of sub-section (2), the income-tax shall be deducted at the rate of four per cent: Provided further that in case of income by way of interest referred to in clause (ic) of sub-section (2), the income-tax shall be deducted at the rate of nineper cent.
(2) The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust,—
(i) in respect of monies borrowed by it in foreign currency from a source outside India,—
(a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2023; or
(b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or
(c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2023, as approved by the Central Government in this behalf; or
(ia) in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2023; or
(ib) in respect of monies borrowed by it from a source outside India by way of issue of any long-term bond or rupee denominated bond on or after the 1st day of April, 2020 but before the 1st day of July, 2023, which is listed only on a recognised stock exchange located in any International Financial Services Centre, or (ic) in respect of money borrowed by it from a source outside India by way of issuance of any long-term bond or rupee denominated bond on or after the 1st day of July, 2023, which is listed only on a recognised stock exchange located in an International Financial Services Centre; and
(ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment.
Explanation.—For the purpose of this section—
(a) "foreign currency" shall have the meaning assigned to it in clause (m) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) "specified company" means an Indian company;
(c) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(d) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.
C. AUTHORITIES
Candour rule observed: section 194LC is a concessional, conditional provision with no merits authority. The statutory scheme and cognate principles are offered.
Statutory backdrop and cognate principles
Concessional code — section 115A and the sister sections
Principle: Section 194LC withholds at 5% (lower for IFSC-routed borrowing) on qualifying ECB/long-term/rupee-bond interest paid to a non-resident, matching the concessional charge under section 115A, and is subject to any more beneficial treaty rate (section 90); it sits with sections 194LB and 194LD as the concessional non-resident family.
Use: Locates the provision and fixes the rate/treaty interaction.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with sections 5 and 9.
Use: Frames the chargeability enquiry underlying any non-resident deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194LC — Interest from an Indian Company or Business Trust (ECB) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Concessional, non-resident-facing; conditional.
Finance Act, 2026: No amendment.
Mechanism: An Indian company/business trust deducts 5% (lower for IFSC-routed borrowing) on qualifying ECB/long-term/rupee-bond interest paid to a non-resident, matching section 115A and subject to treaty relief.
Litigation profile: Sparse. Disputes concern eligibility conditions, not principle — the candour rule applies.
A. SECTION COMMENTARY
Section 194LC provides a concessional withholding regime for interest paid by an Indian company or a business trust to a non-resident or foreign company on monies borrowed in foreign currency under a loan agreement or by way of long-term bonds (including rupee-denominated bonds) within the approved limits and periods. The rate of deduction is five per cent (with a further reduced rate for monies raised through, or bonds listed on, an International Financial Services Centre exchange). It is the principal inducement for external commercial borrowing — a low, near-final withholding rate intended to lower the cost of foreign debt for Indian issuers.
Part of the concessional non-resident code
Section 194LC is read with sections 194LB (infrastructure debt funds) and 194LD (rupee bonds and Government securities held by FIIs/QFIs) as the concessional-withholding family for non-resident lenders, and with section 115A which fixes the corresponding concessional charge. Its application depends on the borrowing satisfying the approval, limit and period conditions and on the lender's non-resident status; the deduction is subject to any more beneficial rate under a tax treaty (section 90).
Why authority is sparse — candour
The provision is concessional, conditional and compliance-oriented; the disputes it generates are about eligibility conditions (approval, period, rate), not about contested principle, and there is no body of merits authority on the section itself. In candour, it is applied from its terms read with section 115A and the general chargeable-sum and treaty principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LC. (1) Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making 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 issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent:
Provided that in case of income by way of interest referred to clause (ib) of sub-section (2), the income-tax shall be deducted at the rate of four per cent: Provided further that in case of income by way of interest referred to in clause (ic) of sub-section (2), the income-tax shall be deducted at the rate of nineper cent.
(2) The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust,—
(i) in respect of monies borrowed by it in foreign currency from a source outside India,—
(a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2023; or
(b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or
(c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2023, as approved by the Central Government in this behalf; or
(ia) in respect of monies borrowed by it from a source outside India by way of issue of rupee denominated bond before the 1st day of July, 2023; or
(ib) in respect of monies borrowed by it from a source outside India by way of issue of any long-term bond or rupee denominated bond on or after the 1st day of April, 2020 but before the 1st day of July, 2023, which is listed only on a recognised stock exchange located in any International Financial Services Centre, or (ic) in respect of money borrowed by it from a source outside India by way of issuance of any long-term bond or rupee denominated bond on or after the 1st day of July, 2023, which is listed only on a recognised stock exchange located in an International Financial Services Centre; and
(ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment.
Explanation.—For the purpose of this section—
(a) "foreign currency" shall have the meaning assigned to it in clause (m) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) "specified company" means an Indian company;
(c) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(d) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.
C. AUTHORITIES
Candour rule observed: section 194LC is a concessional, conditional provision with no merits authority. The statutory scheme and cognate principles are offered.
Statutory backdrop and cognate principles
Concessional code — section 115A and the sister sections
Principle: Section 194LC withholds at 5% (lower for IFSC-routed borrowing) on qualifying ECB/long-term/rupee-bond interest paid to a non-resident, matching the concessional charge under section 115A, and is subject to any more beneficial treaty rate (section 90); it sits with sections 194LB and 194LD as the concessional non-resident family.
Use: Locates the provision and fixes the rate/treaty interaction.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with sections 5 and 9.
Use: Frames the chargeability enquiry underlying any non-resident deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.