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CMA Final · Direct Tax Laws and International Taxation · Interest and Fees

Under the Income-tax Act, 2025, a foreign company's total income for the tax year includes interest of Rs 10,00,000 received from an Indian concern on money borrowed in foreign currency (not falling under the infrastructure debt fund or the other special interest entries). At what rate is tax payable on this interest under the section dealing with tax on dividends, royalty and fees for technical services of foreign companies?

The rate is 20%. Section 207(1) taxes interest received from Government or an Indian concern on foreign currency borrowings at 20%, provided it is not infrastructure debt fund interest or the other specially listed interest. Here neither exception applies, so tax is Rs 2,00,000.

  1. A10%
  2. B20%Correct
  3. C5%
  4. DRates in force

Explanation

Section 207(1), Table serial 3, taxes interest received from Government or an Indian concern on foreign currency borrowings at 20%, unless it is covered by serial numbers 4 and 5. The interest here is not infrastructure debt fund interest (5%), so the 5% rate is wrong. Tax = 20% of Rs 10,00,000 = Rs 2,00,000.

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