Mechanism: The payer deducts 5% on qualifying rupee-bond/Government-security interest to an FII/QFI within the rate ceiling and time window, matching section 115AD and subject to treaty relief.
Litigation profile: Sparse. Disputes concern eligibility conditions, not principle — the candour rule applies.
A. SECTION COMMENTARY
Section 194LD provides for deduction at the concessional rate of five per cent on interest payable to a Foreign Institutional Investor or a Qualified Foreign Investor on rupee-denominated bonds of an Indian company and on Government securities (and, within the scheme, certain municipal debt securities), where the interest does not exceed the rate notified by the Central Government and the bonds/securities fall within the prescribed periods. It is the debt-market counterpart of section 194LC, designed to attract foreign portfolio investment into Indian rupee debt at a predictable, low withholding cost.
A targeted, conditional concession
Like sections 194LB and 194LC, section 194LD is conditional — on the payee being an FII/QFI, on the security being of the prescribed kind, on the rate ceiling, and on the time window. Within those conditions the 5% rate (subject to any more beneficial treaty rate under section 90) is a near-final withholding. The provision dovetails with section 115AD, which fixes the charge on FII income.
Why authority is absent — candour
The provision is narrow, conditional and compliance-oriented and has generated no body of merits litigation. In candour, it is applied from its terms read with section 115AD and the general chargeable-sum and treaty principles; the cognate non-resident-withholding learning is common to sections 194LB/194LC/194LD.
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.
194LD. (1) Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
(2) The income by way of interest referred to in sub-section (1) shall be the interest payable,—
(a) on or after the 1st day of June, 2013 but before the 1st day of July, 2023 in respect of the investment made by the payee in—
(i) a rupee denominated bond of an Indian company; or
(ii) a Government security;
(b) on or after the 1st day of April, 2020 but before the 1st day of July, 2023 in respect of the investment made by the payee in municipal debt securities:
Provided that the rate of interest in respect of bond referred to in sub-clause (i) of clause (a) shall not exceed the rate as the Central Government may, by notification in the Official Gazette, specify.
Explanation.—For the purpose of this section,—
(a) "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the
(b) "Government security" shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(ba) "municipal debt securities" shall have the meaning assigned to it in clause (m) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(c) "Qualified Foreign Investor" shall have the meaning assigned to it in the Circular No. Cir/IMD /DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
C. AUTHORITIES
Candour rule observed: section 194LD is a conditional concession with no merits authority. The statutory scheme and cognate principles are offered.
Statutory backdrop and cognate principles
Concessional FII/QFI code — section 115AD and the sister sections
Principle: Section 194LD withholds at 5% on qualifying rupee-bond and Government-security interest paid to an FII/QFI within the rate ceiling and time window, matching the section 115AD charge and subject to any more beneficial treaty rate; it completes the concessional family with sections 194LB and 194LC.
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 194LD — Interest on Bonds and Government Securities (FII/QFI) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Concessional, FII/QFI-facing; conditional.
Finance Act, 2026: No amendment.
Mechanism: The payer deducts 5% on qualifying rupee-bond/Government-security interest to an FII/QFI within the rate ceiling and time window, matching section 115AD and subject to treaty relief.
Litigation profile: Sparse. Disputes concern eligibility conditions, not principle — the candour rule applies.
A. SECTION COMMENTARY
Section 194LD provides for deduction at the concessional rate of five per cent on interest payable to a Foreign Institutional Investor or a Qualified Foreign Investor on rupee-denominated bonds of an Indian company and on Government securities (and, within the scheme, certain municipal debt securities), where the interest does not exceed the rate notified by the Central Government and the bonds/securities fall within the prescribed periods. It is the debt-market counterpart of section 194LC, designed to attract foreign portfolio investment into Indian rupee debt at a predictable, low withholding cost.
A targeted, conditional concession
Like sections 194LB and 194LC, section 194LD is conditional — on the payee being an FII/QFI, on the security being of the prescribed kind, on the rate ceiling, and on the time window. Within those conditions the 5% rate (subject to any more beneficial treaty rate under section 90) is a near-final withholding. The provision dovetails with section 115AD, which fixes the charge on FII income.
Why authority is absent — candour
The provision is narrow, conditional and compliance-oriented and has generated no body of merits litigation. In candour, it is applied from its terms read with section 115AD and the general chargeable-sum and treaty principles; the cognate non-resident-withholding learning is common to sections 194LB/194LC/194LD.
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.
194LD. (1) Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.
(2) The income by way of interest referred to in sub-section (1) shall be the interest payable,—
(a) on or after the 1st day of June, 2013 but before the 1st day of July, 2023 in respect of the investment made by the payee in—
(i) a rupee denominated bond of an Indian company; or
(ii) a Government security;
(b) on or after the 1st day of April, 2020 but before the 1st day of July, 2023 in respect of the investment made by the payee in municipal debt securities:
Provided that the rate of interest in respect of bond referred to in sub-clause (i) of clause (a) shall not exceed the rate as the Central Government may, by notification in the Official Gazette, specify.
Explanation.—For the purpose of this section,—
(a) "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the
Explanation to section 115AD;
(b) "Government security" shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(ba) "municipal debt securities" shall have the meaning assigned to it in clause (m) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(c) "Qualified Foreign Investor" shall have the meaning assigned to it in the Circular No. Cir/IMD /DF/14/2011, dated the 9th August, 2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
C. AUTHORITIES
Candour rule observed: section 194LD is a conditional concession with no merits authority. The statutory scheme and cognate principles are offered.
Statutory backdrop and cognate principles
Concessional FII/QFI code — section 115AD and the sister sections
Principle: Section 194LD withholds at 5% on qualifying rupee-bond and Government-security interest paid to an FII/QFI within the rate ceiling and time window, matching the section 115AD charge and subject to any more beneficial treaty rate; it completes the concessional family with sections 194LB and 194LC.
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.