Indian banks have found a way to skirt the tax on external commercial borrowings (ECBs), levied in the new Finance Bill. Indian banks with foreign operations can pick up these ECBs in their books and they will still not have to pay the withholding tax as the money will be repatriated to India.
The new Finance Bill had withdrawn the tax exemption for ECBs under Section 10(15) IV of the Income Tax Act. It will come into effect the beginning of next month.
Banks would have to deduct the withholding tax before they remit the money out of India. Indian banks had lobbied hard against the imposition of this tax as in cases where the foreign offices of Indian banks take the ECB exposure in their books, the money is technically repatriated back to India.
However, these banks will have to pay the income tax.
