To help stressed infrastructure sectors such as aviation, the government would soon announce a cut in withholding tax on interest payments on external commercial borrowings (ECBs), reducing it from 20 to five per cent.
“The withholding tax would be liberalised, as announced in the 2012-13 Budget,” Thomas Mathew, joint secretary in the finance ministry, told reporters. He added the modalities for this were being formalised by the law ministry.
In Budget 2012-13, Finance Minister Pranab Mukherjee had proposed to reduce the rate of withholding tax on interest payments on ECBs from 20 per cent to five per cent for three years, for certain stressed infrastructure sectors.
This, he had said, was aimed at providing low-cost funds to power, airlines, roads & bridges, ports & shipyards, affordable housing, fertiliser, and dams sectors. Considering the high interest rates in the domestic market, low-cost ECBs could provide a source of low-cost funds to these sectors.
Borrowings under this route rose to $34.4 billion in the last financial year, even surpassing the indicative ceiling of $30 billion. Mathew said the ECB ceiling was not a concern at all.
In 2010-11, ECBs raised by companies stood at $24.62 billion. For the first two months of the current financial year, funds raised through this route by India Inc stood at $5.97 billion.
