The finance ministry on Friday said it has reduced tax on interest
paid by companies for foreign borrowings to five per cent from 20 per
cent.
The Finance Act, 2012, had
provided that interest income of a non-resident investor would be taxed
at the reduced rate of five per cent. Thus, the Indian company, while
paying interest on money borrowed in foreign currency, would be required
to withhold tax at five per cent and not 20 per cent
The relief has been provided on borrowings made during July 2012 to
June 2015. “With a view to lower the compliance burden and reduce the
time lag, which would arise on account of case-by-case approval, the
government has decided to grant approval to all borrowings by way of
loan agreement and long-term infrastructure bonds that satisfy certain
conditions***,” the finance ministry said in a statement.
A finance ministry official said it usually takes about two to three weeks to seek approval for such borrowings.
With this relaxation, a company can directly go for overseas borrowing, taking advantage of lower rates.
***For availing the tax benefit, the finance ministry has laid down
conditions that in case of long-term infrastructure bonds, the end-use
of the proceeds of such issue should be for the infrastructure sector as
defined by the Reserve Bank of India under its external commercial
borrowing regulation.