Clearing the air, the Income Tax Department has said that foreign portfolio investors (FPIs) will continue to enjoy five per cent withholding tax on debt interest income.

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The clarification by the Central Board of Direct Taxes (CBDT) came on Wednesday after a few reports claimed that the concessional withholding tax rate of 5 per cent on interest income of FPIs has been withdrawn. The CBDT confirmed recently that the five per cent tax rate on interest income of FPIs will see no change.

Informing about the clarification Income Tax India tweeted,"CBDT issues clarification on continuation of concessional rate of tax on interest income of FPIs. It has been clarified that the concessional rate of 5% will continue to be applicable on certain interest income of FPIs. Press release issued on the same today (Wednesday)."

"It is hereby clarified that there is no change in the said provision even after amendment of section 115AD vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and the concessional rate of tax of 5% shall continue to be applicable for interest income referred to in section 194LD of the Act," the CBDT said .

While Section 115AD of the Income-tax Act contains provisions for taxation of income of FPIs, Section 194LD deals with withholding tax on income of a Foreign Institutional Investor or a Qualified Foreign Investor, from interest on certain bonds / Government Securities.

The issuer of the debt instrument has to withhold 5 per cent tax before crediting interest to the FPI.