)
The government today cut withholding tax on interest earned by foreign investors on investment in long term infrastructure bonds to 5% from 20% till May 2015.
Rationalisation of withholding tax is expected to encourage greater subscription in Indian debt securities by foreign investors.
“In order to provide broad based incentive and encourage greater off-shore investment in debt market by FIIs and Qualified Foreign Investors (QFIs), it has been decided that the benefit of lower withholding tax shall be available in respect of interest on investment made in bonds issued by Indian companies and government securities,” the Finance Ministry said in a statement as it notified the Budget decision.
Also Read
Rate of withholding tax on interest payments on the borrowings of Infrastructure Debt Funds (IDF) was reduced from 20% to 5% in Budget 2011-12.
Section 194 LC was introduced in the Income tax Act to reduce the rate in respect of interest paid on money borrowed in foreign currency from outside India till June 2015 by way of long term infrastructure bonds issued in foreign currency. In the Budget 2013 it was proposed to provide the benefit to cases where investment is made by a non-resident in rupee denominated long term infrastructure bonds.
The benefit would be available in respect of interest income of FIIs and QFIs accruing between June 1, 2013 and May 31, 2015 irrespective of the date of investment.
Earlier, in cases where Permanent Account Number (PAN) of non-resident investor was not provided, the benefit of reduced tax was not allowed. But now, considering the practical difficulty involved in obtaining PAN of non-resident investor in case of investment in long term infrastructure bonds, the condition has been waived off.
The finance ministry said the reduction in rates and simplification of the with-holding tax norms would encourage greater subscription in Indian debt securities by foreign investors, encourage development of the Indian debt market and accelerate the pace of growth of the Indian economy.
