Income Tax Exemption to Interest Income on Specified Offshore Rupee Denominated Bonds

The Finance Ministry, last day informed that the Government is planning to introduce income tax exemption to the interest income on the specified Offshore Rupee Denominated Bonds.

“Legislative amendments in this regard shall be proposed in due course”, the Ministry said.

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 before the 1st of July, 2020 is liable for concessional rate of tax of Five Percent (5%). Consequently, Section 194LC of the Income Tax Act, 1961 provides for the deduction of tax at a lower rate of five percent on the said interest payment.

Consequent to review of the State of Economy on 14th September, 2018 by the Prime Minister, Shri Narendra Modi, the Finance Minister, Shri Arun Jaitley had announced a Multi-pronged Strategy to contain the Current Account Deficit (CAD) and augment the Foreign Exchange Inflow. In this background, Low Cost Foreign Borrowings through Offshore Rupee Denominated Bond have been further incentivized to increase the foreign exchange inflow.

Accordingly, it has been 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 17th September, 2018 to 31st March, 2019 shall be exempt from tax, and consequently, no tax shall be deducted on the payment of interest in respect of the said Bond under Section 194LC of the Act.