21 9 2012 press release dated 21 9 2012 1
Press Release, dated 21-9-2012 was issued by the Central Board of Direct Taxes on 21 September 2012. Its subject is 21 9 2012 press release dated 21 9 2012 1.
Announces the Central Government's blanket approval for the purposes of section 194LC, so that no case-by-case approval is needed. The Finance Act, 2012 amended section 115A and inserted section 194LC so that interest of a non-resident investor on money borrowed in foreign currency by an Indian company from a source outside India, under a loan agreement or by way of long term infrastructure bonds, is taxed at 5 per cent instead of 20 per cent, with withholding at the same reduced rate, provided the borrowing is made between 1 July 2012 and 30 June 2015 and the borrowing and the interest rate are approved by the Central Government. Broadly, a borrowing complying with the external commercial borrowing regulations administered by the Reserve Bank of India qualifies, and in the case of long term infrastructure bonds the proceeds must be used for the infrastructure sector as defined by the Reserve Bank under those regulations. The conditions are set out in the Board's circular on the subject of the same date.
The approval is given in this general form to lower the compliance burden and reduce the time lag that case-by-case approval would have caused.
PRESS RELEASE
MINISTRY OF FINANCE
21st September, 2012
Subject: Approval of loan agreements/ long term infrastructure bonds
and rate of interest for the purpose of Section 194LC of the
Income-tax Act, 1961- regarding.
In order to enable low cost foreign borrowings by Indian companies, the Finance
Act, 2012 had amended the Income-tax Act to lower the tax on such borrowings.
The amendment to section 115A and insertion of section 194LC in the Income-tax
Act provide that the interest income of a non-resident investor will be taxed at the
reduced rate of 5 per cent instead of the existing rate of 20 per cent. Further, the
liability of the Indian company to withhold tax on such income would also be at the
reduced rate of 5 per cent. This lower rate of taxation will apply to interest paid to a
non-resident by an Indian company for money borrowed in foreign currency from a
source outside India either under a loan agreement or by way of long-term
infrastructure bonds. This is also subject to the condition that the borrowing is made
during the period from 01.07.2012 to 30.06.2015 and such borrowing and the rate of
interest are approved by the Central Government.
With a view to lower the compliance burden and reduce the time lag which would
arise on account of case-by-case approval, the Central Government has decided
to grant approval to all borrowings by way of loan agreement and long-term
infrastructure bonds that satisfy certain conditions. No specific approval in such
cases would be required. Broadly, borrowings under a loan agreement or by way of
issue of long-term infrastructure bonds that comply with External Commercial
Borrowings (ECB) regulations as administered by the Reserve Bank of India (RBI)
would be eligible for availing of the benefit of this concessional tax regime. Further,
in case of long-term infrastructure bonds the end use of the proceeds of such bond
issue should be for the infrastructure sector as defined by RBI under its ECB
regulations. The details of the conditions to be satisfied are elaborated in the circular
on approval of loan agreements/ long-term infrastructure bonds under section
194LC of Income –tax Act, dated 21/09/12 issued by the Central Board of Direct
Taxes (CBDT).
In an order under section 201 on withholding at 5 per cent on interest paid to a foreign lender, or when advising on the pricing of an external commercial borrowing.
Source: the Income Tax Department’s own published text — its page for this instrument.
