In a bid to encourage foreign investors to buy rupee-denominated bonds, the government on Thursday announced tax reliefs on income from offshore bonds.
It has been decided that a lower withholding tax of 5 percent will be applicable on interest income accruing to non-resident investors of rupee bonds, similar to the treatment given to offshore dollar denominated bonds, an official statement said.
"So far as taxation of interest income from these INR off-shore bonds in the case of non-resident investors is concerned, it is clarified that withholding tax at the rate of 5 percent, which is in the nature of final tax, would be applicable in the same way as it is applicable for off-shore dollar denominated bonds," said a finance ministry statement.
Moreover, the capital gains from a possible appreciation of rupee between the date of issue and redemption against the foreign currency in which the investment is made, would be exempted from capital gains tax, the statement added.
The government will bring in the required legislative amendments in the Finance Bill 2016.
The Reserve Bank of India last month permitted Indian corporates to issue rupee denominated bonds outside India.
The bonds will facilitate raising of cheaper funds from overseas markets, while shifting the burden of hedging against foreign currency fluctuations to the investors buying these bonds.