Transactions with Foreign Banks/Foreign branches of Indian banks
The applicability of any Double Taxation Avoidance Agreement is to be taken into account for the purpose of computation of tax in respect of transactions with foreign banks or foreign branches of Indian banks.
Similarly the applicability of Transfer Pricing Regulations is to be taken into account for the purpose of computation of tax in respect of international transactions with Associated Enterprises covered under section 92E of the Income-tax Act, 1961. Reference may also be made to the “Guidance Note on Report on International Transactions under section 92E of the Income-tax Act, 1961 (Transfer Pricing)” issued by ICAI.
In respect of any provision for bad and doubtful debts made by a foreign bank, an amount not exceeding 5% of the total income (computed before making any deduction under Chapter VI-A) is allowable as deduction.