CMA Final · Direct Tax Laws and International Taxation · Interest and Fees
A foreign company earns Rs 20,00,000 as interest from an Indian concern on money borrowed in foreign currency, not covered by Sl. Nos. 4 and 5 of the section 207(1) Table. It also earns Rs 5,00,000 as dividend not from an IFSC unit. Ignoring surcharge and cess, the tax on these two items under section 207(1) at the specified rates is:
The tax is Rs 5,00,000. Foreign-currency interest of Rs 20,00,000 and ordinary dividend of Rs 5,00,000 are both taxed at 20% under section 207(1), giving Rs 4,00,000 plus Rs 1,00,000, before surcharge and cess.
- ARs 5,00,000Correct
- BRs 3,50,000
- CRs 5,50,000
- DRs 4,50,000
Explanation
Interest on foreign currency borrowing falls under Sl. No. 3 at 20%: 20,00,000 x 20% = 4,00,000. Dividend falls under Sl. No. 1 at 20%: 5,00,000 x 20% = 1,00,000. Total = 5,00,000. Treating the dividend at 10% as an IFSC dividend would wrongly give 4,50,000.
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