Many foreign banks have branches/offices in India which are called PE (or Permanent Establishment)
These branches pay interest to their head office of bank in foreign country or to other branches of bank in foreign country.
Now as per Explanation to Section 9(1)(v),it is clarified that
- Such interest shall be chargeable to tax in India as it will be deemed to be income accrued or arised in India
- PE shall be deemed to be separate from foreign bank
- PE shall deduct TDS on such interest payment