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Withholding Tax Rate, Norms Eased For FIIs, QFIs Courtesy : The Economic Times

Finance ministry to encourage greater foreign investment in Indian debt market, help develop local debt market and accelerate economic growth

The finance ministry on Tuesday said that the benefit of lower withholding tax on interest income earned by foreign investors on their investment in corporate bonds and government securities will be available regardless when the debt was bought.

The benefit would be available in respect of interest income earned by foreign institutional investors (FIIs) and qualified foreign investors (QFIs) between June 1, 2013 and May 31, 2015, the finance ministry said in a statement. The ministry said it would encourage greater foreign investment in Indian debt, help develop local debt market and accelerate economic growth. The government has been opening the debt market at a fast pace in a desperate rush to attract foreign capital to fund India’s yawning current account gap, expected to touch a record high of 5% of GDP in the current year. The ministry also said foreign investors would not have to obtain Permanent Account Number (PAN) to avail of the reduced withholding tax on long-term infrastructure bonds.
In his reply to the budget, the government had inserted a new Section 194 LD for providing a 5% rate of tax on interest payment during the period beginning 1st June, 2013 and ending on 31st May, 2015 to foreign institutional investors and qualified foreign investors on investments in government securities and rupee denominated Government corporate bonds.

There was some confusion if this was available to investment made only in this period or any investment.
“In order to provide broad based incentive and encourage greater off-shore investment in debt market by FIIs and QFIs, it has been decided that the benefit of lower withholding tax shall be available in respect of interest on investment made in bonds issued by Indian companies and government securities,” the ministry said in its statement.
The benefit will be available on interest income of Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) accruing between June 2013 and May 2015 irrespective of the date of investment, the Ministry added.

The ministry also clarified that foreign investors would not need PAN to avail of lower withholding tax on long-term infrastructure bonds. The decision was taken considering the practical difficulty involved in obtaining PAN of non-resident investor, the ministry said.

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