Press Information Bureau

Government of India

Ministry of Finance

16-March-2012 13:38 IST

Measures Introduced to Allow Corporates to Access Lower Cost Funds; Promote Higher Level of Investments in Several Sectors

Rate of Withholding Tax on Interest Payments on ECBs Proposed to be Reduced to 5 Per Cent From 20 Per Cent

Restriction on Venture Capital Funds to Invest in Specified Sectors Removed

Rate of Investment Linked Deduction of Capital Expenditure Proposed to be Enhanced to 150 Per Cent; New Sectors Added

In the General Budget 2012-13 presented by the Union Finance Minister Shri Pranab Mukherjee in the LokSabha here today, a slew of measures have been introduced to allow corporates to access low cost funds and also to promote higher level of investments in several sectors.

To provide low cost funds to stressed infrastructure sectors, the rate of withholding tax on interest payments on external commercial borrowings (ECBs) has been proposed to be reduced from 20 per cent to 5 per cent for three years. These sectors are power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilizer and dams.

To promote higher level of investments, the restriction on Venture Capital Funds (VCFs) to invest only in nine specified sectors has been proposed to be removed. It has further been proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure.

The Finance Minister, Shri Mukherjee also proposed to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per cent for one more year i.e. upto March 31, 2013.

Further, the Finance Minister has proposed to provide, investment linked deduction of capital expenditure incurred in the businesses of cold chain facility, warehouses for storage of food grains, hospitals, fertilizers and affordable housing at the enhanced rate of 150 per cent, as against the current of 100 per cent.

Also new sectors have been proposed to be added for the purposes of investment linked deduction which include bee keeping and production of honey and beeswax, container freight station and inland container depots and warehousing for storage of sugar.

DSM/AG/DB/14

Withholding tax on interest payments eased to lower borrowing costs and expand targeted investment incentives across sectors. Withholding tax on interest payments for external commercial borrowings is proposed to be reduced for specified stressed infrastructure sectors to provide lower-cost foreign financing; restrictions that previously limited Venture Capital Funds to nine sectors are removed; the cascading effect of Dividend Distribution Tax in multi-tier corporate structures is to be eliminated; concessional tax treatment for repatriated dividends from foreign subsidiaries is extended for a further limited period; and the investment-linked deduction rate for qualifying capital expenditure in targeted sectors is increased while new eligible activities are added.