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CMA Intermediate · Direct and Indirect Taxation · Basic Concepts, Basis of Charge and Capital and Revenue Receipts

Under section 209 of the Income-tax Act, 2025, a non-resident's total income includes interest of ₹4,00,000 on notified bonds of an Indian company purchased in foreign currency. At what rate is tax payable on this interest?

The interest is taxed at 10%. Section 209(1) specifies a 10% rate for a non-resident's interest on notified bonds of an Indian company purchased in foreign currency, so tax on ₹4,00,000 is ₹40,000. The 12.5% rate is only for long-term capital gains on transfer.

  1. A10%Correct
  2. B12.5%
  3. C20%
  4. DRates in force

Explanation

The Table in section 209(1) gives serial number 1 (interest on notified bonds of an Indian company purchased in foreign currency) a rate of 10%. Tax is therefore 10% of ₹4,00,000 = ₹40,000. The 12.5% rate applies only to long-term capital gains on such bonds or GDRs, and 'rates in force' applies only to the remaining total income.

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