Centre exempts tax for interest income on select off-shore rupee denominated bonds

The union government on Monday announced that interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect to rupee denominated bonds issued outside India before July 1, 2020, would be liable for a concessional tax rate of five per cent.

An official communication from the Central Board of Direct Taxes (CBDT) stated that no tax shall be deducted on the payment of interest in respect of the said bond under Section 194LC of the Income-tax Act, 1961 (the Act).

The announcement comes less than a week after a review of the economy was conducted by Prime Minister Narendra Modi, after which Finance Minister Arun Jaitley announced a multi-pronged strategy to contain the Current Account Deficit (CAD) and augment the foreign exchange inflow.

In the wake of the same, low cost foreign borrowings through off-shore rupee denominated bond have been further incentivised to increase the foreign exchange inflow.

It was therefore decided that interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect of rupee denominated bond issued outside India during the period from September 17, 2018 to March 31, 2019, shall be exempt from tax.