Concessional rate of tax on overseas borrowing

     The existing provisions of section 194LC of the Act provide for lower withholding tax rate of 5 per cent. on interest paid by an Indian company to non-residents on monies borrowed by it in foreign currency from a source outside India under a loan agreement or through issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2015 subject to certain conditions.

     In order to further incentivise low cost long-term foreign borrowings by Indian companies, it is proposed to amend section 194LC to extend the benefit of this concessional rate of withholding tax to borrowings by way of issue of any long-term bond, and not limited to a long term infrastructure bond.

     It is further proposed to extend by two years the period of borrowing for which the said benefit shall be available. The concessional rate of withholding tax will now be available in respect of borrowings made before 1st day of July, 2017.

     Section 206AA of the Act provides for levy of higher rate of withholding tax in case the recipient of income does not provide permanent account number to the deductor. An exception from applicability of section 206AA in respect of payment of interest on long-term infrastructure bonds eligible for benefit under section 194LC is currently provided in sub-section (7) of this section.

     Consequential amendment is also proposed in section 206AA to ensure that this benefit of exemption is extended to payment of interest on any long-term bond referred to in section 194LC.

     These amendments will take effect from 1st October, 2014.

[Clauses 57 & 61]

Concessional withholding tax on overseas borrowing extended to long term bonds and exempted from PAN requirement for qualifying interest. The concessional withholding tax rate previously limited to long term infrastructure bonds is extended to interest on any long term bond issued by Indian companies for foreign borrowings, and the eligibility period for such concessional treatment is extended to borrowings made before 1st July, 2017. A related amendment expands the exception to higher withholding for non furnishing of permanent account numbers so that it applies to interest on any qualifying long term bond. These amendments take effect from 1st October, 2014.