India Approves Exemption To Interest Income On Specified Off-Shore Rupee Denominated Bonds

The Indian Ministry of Finance issued the new incentive measure that interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect of rupee denominated bond issued outside India during the period from September 17, 2018 to March 31, 2019 shall be exempt from tax.

Background

On 14 September 2018, the Indian Prime Minister has announced a multi-pronged strategy to contain the Current Account Deficit (CAD) and augment the foreign exchange inflow. Low cost foreign borrowings through off-shore rupee denominated bond is seen by the Indian government as a way to increase the foreign exchange inflow. The exemption to such interest income has been decided under this circumstance.

No Tax Deduction Related To The Exempted Interest Payment

Interest income on such specified off-shore rupee denominated bonds issued outside India before the July 1, 2020 is liable for concessional tax rate of five percent, and respectively, section 194LC of the Income Tax Act, 1961 (the Act) provides for the deduction of tax at a lower rate of five percent on the said interest payment. Consequent to the exemption, no tax shall be deducted on the payment of interest in respect of the said bond under section 194LC of the Act.

Source: Indian Ministry of Finance

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