Concessional tax rate on debt puts foreign funds on sticky wicket

Experts believe the lower tax rate is a significant contributor in making India's debt market attractive to overseas investors

Even as the clamour for abolishing tax on long-term capital gains for equity investment is growing, overseas investors are staring at a higher tax outgo on their investments in Indian debt. Foreign portfolio investors (FPIs) pay a concessional tax rate of 5 per cent on interest they earn on rupee denominated bonds issued by Indian firms and government securities. This is provided for under section 194LD of the I-T Act, often referred to as the withholding tax. The catch — the concession is applicable only till June 30, 2020, and interest to be paid after this date would be taxed