Tax Breaks Mooted For Banks In Indian Special Economic Zones

by Mary Swire, Tax-News.com, Hong Kong

31 March 2003

The Indian commerce ministry has called for tax reductions on overseas banks operating in special economic zones in order to promote investment in these areas.

The current income tax rate for banks is 35% of profits, though it is 42% for branches of foreign banks.

The ministry would also like to see an extension of the tax holiday scheme enjoyed by banks in special economic areas. At present, these firms are allowed a five year tax holiday, and pay half tax in the following two years. The ministry wants the 50% period extended for a further three years so banks pay half their prescribed tax for a total of five years after the end of the tax holiday. It has also proposed at the end of this period the half tax rate will be allowed to continue if 50% of profits are reinvested.

According to reports in the Business Standard, officials have said that the revenue department has included measures on special economic zones in the Exim Policy on March 31, which have been put out to the ministries for consultation. It is hoped they will be in place by July. Also announced was of a package of income tax benefits to developers.

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