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FM makes foreign borrowings cheaper

: In yet another move to draw in international capital, the Indian government reduced tax on overseas borrowings by domestic companies to five per cent from 20 per cent on Friday, making it easier for local companies to raise funds abroad. The finance minister P Chidambaram said that the reduced tax rate will be applicable to the funds borrowed between July 2012 and June 2015.

Liability of the Indian company to withhold tax on such income will also be at the reduced rate of five per cent. 'This lower rate of taxation will apply to interest paid to a non-resident by an Indian company for money borrowed in foreign currency from a source outside India, either under a loan agreement or by way of long-term infrastructure bonds,' the finance minister said.

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. No specific approval in such cases will be required.

Borrowings under a loan agreement or by way of issue of long-term infrastructure bonds that comply with external commercial borrowings (ECB) regulations as administered by the Reserve Bank of India (RBI) would be eligible for availing of the benefit of this concessional tax regime.

In case of long-term infrastructure bonds, the end use of the proceeds of such bond issue should be for the infrastructure sector as defined by RBI under its ECB regulations, the finance ministry said.
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