Income Tax Act Section 196D

Income Tax Act Section 196D


Foreign investments are critical to an economy’s viability, and India, as a developing economy, has become a popular destination for prospective investors from around the world. One major factor attracting foreign investors is the rapid growth of the equity markets. Section 196D of the Income Tax Act has been added by the government to provide lower tax rates for income earned by foreign institutional investors. This section, however, does not address the income derived from government securities or rupee-denominated bonds, which are mentioned in Section 194LD. The provisions of Section 196D are explained briefly in this article.

When Should TDS Be Deducted Under Section 196D?

When such income is credited to the payee’s account or when payment is made, whichever comes first. For this purpose, “payment” can be in cash, by cheque or draft, or by any other method.

Tax Deduction Calculation

The tax is deducted for a Foreign Institutional Investor under Section 196D if the income is from securities referred to in Section 115AD.

The tax deduction is calculated at a rate of 20%. The tax deduction will be collected on behalf of the person responsible for the tax deduction. Everyone who deducts or collects taxes will be assigned an account number.

The collected tax must be deposited to the credit of the central government via one of the following methods:

  • Branch of Reserve Bank of India
  • Any State Bank of India branch
  • Any notified public sector bank branch where income tax offices are locatede-
  • Taxation must be
  • All assessees subjected to mandatory audit under the Income Tax Act will be required to make electronic tax payments through internet banking services provided by authorised Taxpayers can also use internet banking to pay their taxes.

Certificate of TDS

Every person who deducts tax at source under Section 196D must issue a quarterly certificate in Form No.16A.


TDS on Income of Foreign Institutional Investors from Securities (Section 196D) (1) Where any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD is payable] to a Foreign Institutional Investor, the person responsible for making the payment shall, at the time of credit of such income to the payee’s account or at the time of payment thereof [by any mode], whichever is earlier, deduct income-tax at the rate of 20%.