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27 September 2018 Indian tax administration provides tax-free interest on Rupee denominated bonds issued outside India On 17 September 2018, India's Central Board of Direct Taxes (CBDT) announced the granting of a tax exemption on interest received by nonresidents on Rupee-denominated bonds (RDBs) issued outside India by an Indian company or a business trust1 during the period from 17 September 2018 to 31 March 2019. The exemption is intended to increase the foreign exchange inflow and to attempt to reduce current deficits. Under the current law, nonresidents are subject to a 5% withholding tax2 on interest on RDBs3 issued outside India through 30 June 2020. Based on the review of the State of Economy on 14 September 2018 by the Prime Minister of India, the Indian Government has announced a multi-pronged strategy to reduce current deficits and boost the foreign exchange inflow into India. One of the measures is to stimulate low cost foreign borrowings through the issuance of RDBs. On 17 September 2018, to achieve the goal, the CBDT issued a Press Release stating that interest on RDBs issued outside India for the period from 17 September 2018 to 31 March 2019 will be exempt from the 5% withholding tax. The legislative amendments to give effect to the above exemption would be proposed in due course. It is relevant to note that the Press Release provides that the tax free treatment only applies to interest on RDBs issued during the period from 17 September 2018 to 31 March 2019. Accordingly, interest on RDBs issued prior to 17 September 2018 and after 31 March 2019 through 30 June 2020 is still subject to the 5% withholding tax. 3 RDBs are permitted to be issued by any company, Real Estate Investment Trusts or Infrastructure Investment Trusts in accordance with the framework issued by the Reserve Bank of India. The currency risk in relation to these RDBs is borne by the investors. Document ID: 2018-6132 |
