As a key measure to promote foreign inflows, the government on Monday said it will soon reduce tax on interest payments on
overseas borrowings to 5 per cent from the present 20 per cent.
"The
withholding tax would be liberalised as announced in the
2012-13 Budget ," Joint Secretary in the Finance Ministry Thomas Mathew told reporters.
He said the modalities are being formalised by the legislative department in the Law Ministry.
In his Budget speech, Finance Minister Pranab Mukherjee had proposed to reduce the rate of withholding tax on interest payments on
external commercial borrowings (ECB) from 20 per cent to 5 per cent for three years.
This, he had said, was aimed at providing low cost funds to stressed infrastructure sectors.
Amid high interest rates in the domestic market, low cost ECBs have emerged as an important source of credit for the corporate India.
The borrowings under this route increased to $34.4 billion in the last fiscal from $18.06 billion five years ago.
In the first two months of 2012-13, the overseas borrowings totalled $5.97 billion.
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