Budget 2020-21 + FINANCE BILL, 2020

Amendment of section 194LD of the Act to extend the period of concessional rate of withholding tax and also to extend this concessional rate to municipal debt securities.

Section 194LD of the Act provides for lower TDS of five per cent in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government securities and RDB of an Indian company subject to the condition that the rate of interest does not exceed the rate notified by the Central Government in this regard. The section further provides that the interest should be payable at any time on or after 1st June, 2013 but before 1st July, 2020.

Representations have been received for extension of the time limit and also for a further concessional rate of TDS on interest payment on investment in municipal bonds, as Foreign Portfolio Investors (FPIs) have now been permitted to invest in municipal bonds by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) under the limits available for FPI investments in State Development Loans (SDL).

In order to attract fresh investment, create jobs and stimulate the economy, it has been proposed to amend section 194LD to,-

(i) extend the period of rate of TDS of five per cent under the said section to 1st July, 2023 from the existing 1st July, 2020;

(ii) provide that the concessional rate of TDS of five per cent under the said section shall also apply on the interest payable, on or after 1st April, 2020 but before 1st July, 2023, to a FII or QFI in respect of the investment made in municipal debt security.

This amendment will take effect from 1st April, 2020.

[Clause 83]

 

 

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Budget 2020-21 + FINANCE BILL, 2020

Concessional withholding tax extended and applied to municipal debt, enabling foreign investor interest relief within a renewed operative window. Amendment to section 194LD extends the concessional withholding tax regime and applies the concessional rate to interest on municipal debt securities by Foreign Institutional Investors and Qualified Foreign Investors, preserving the reduced TDS rate for eligible interest payments and changing the operative period so that interest paid within the newly prescribed window qualifies for the concession, with the amendment taking effect from the start of the specified fiscal period.