Govt exempts interest on specified overseas rupee bonds from income tax
18 September 2018
The government has extended income tax exemption to interest payable on rupee denominated bonds issued outside India by a company or a trust to a non-resident or a foreign company, in a move aimed at increasing dollar inflow and easing the pressure on rupee.
The income tax exemption will be available on rupee denominated bond issued outside India between 17 September 2018 and 31 March 2019, the finance ministry stated in a release.
As per I-T rules, interest payable by an Indian company or a business trust to a non-resident, including a foreign company, on rupee denominated bond issued outside India before 1 July 2020, was liable for concessional rate of tax of 5 per cent.
Section 194LC of the Income-tax Act, 1961 provides for the deduction of tax at a lower rate of five per cent on the said inte rest payment.
This is part of a multi-pronged strategy to contain the current account deficit (CAD) and augment foreign exchange Inflow announced by the finance ministry following a review of the state of economy by Prime Minister Narendra Modi on 14 September.
It was decided to further incentivise low cost foreign borrowings through off-shore rupee denominated bonds to increase foreign exchange inflow.
Legislative amendments in this regard shall be proposed in due course.
The government has already announced five steps to arrest rupee depreciation and deal with current account deficit, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investments, curbs on non-essential imports.