Concessional Rate of Tax


Concessional Rate of Tax

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Concessional rate of tax on overseas borrowing [Section 194LC]

Concessional rate of tax on overseas borrowing [Section 194LC] [W.e.f. 01-10-2014]

 

The existing provisions of section 194LC provide for lower withholding tax rate of 5% on interest paid by an Indian company to non-residents on monies borrowed by it in foreign currency from a source outside India under a loan agreement or through issue of long-term infrastructure bonds at any time on or after 01- 07- 2012 but before 01-07-2015 subject to certain conditions.

In order to further incentivise low cost long-term foreign borrowings by Indian companies, the Act has made the following changes in section 194LC:

(i) The benefit of concessional rate has also been made applicable to a business trust besides the Indian company.

(ii) Money borrowed in foreign currency from a source outside India should be:

(a) under a loan agreement at any time on or after 01-07-2012 but before 01-07-2017; or

(b) by way of issue of long-term infrastructure bonds at any time on or after 1-7-2012 but before 1-10-2014; or

(c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after 1-10-2014 but before 01-07-2017,

In other words, the Act has extended the benefit of this concessional rate of withholding tax to borrowings by way of issue of any long-term bond, and not limited to a long term infrastructure bond. Further, the period of borrowing for which the said benefit shall be available has been extended by two years. Thus, the concessional rate of withholding tax will now be available in respect of borrowings made before 1- 07- 2017 instead of 1- 07-2015.  withholding tax in case the recipient of income does not provide permanent account number to the deductor. An exception from applicability of section 206AA 

Since, the benefit of lower withholding tax rate of 5% has now been made available under section 194LC to issue of any long-term bond instead of long-term infrastructure bond, section 206AA(7) has been amended to ensure that this benefit of exemption is extended to payment of interest on any long-term bond referred to in section 194LC.BACK 

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