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India Reduces Tax On Domestic Bonds

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

03 May 2013


India aims to attract overseas capital and narrow its current-account deficit by cutting the tax levied on the interest foreign investors earn on investments in domestic bonds from 20% to 5%.

Finance Minister P. Chidambaram announced the change to the withholding tax in a speech to the lower house of Parliament on Tuesday. He said the tax cut applies to foreign individual and qualified institutional investors in rupee-denominated government and corporate bonds and government securities and will be in effect from June 1, 2013 to May 31, 2015.

The announcement gave a boost to the Indian rupee and raised hopes that the new measures will attract foreign investors, who can buy up to USD75bn of government debt.

The decision follows proposals made back in February to lower tax on foreign investments in long-term infrastructure bonds to 5%. However, under the measures outlined in Tuesday’s announcement it is clear that the Indian Financial Ministry has decided to extend this lower rate across all government and corporate bonds.

In the quarter ending December 31 India’s current-account deficit reached a record USD32.6bn, 6.7% of gross domestic product, due to a slowdown in exports.

TAGS: tax | investment | India | foreign direct investment (FDI) | banking | gross domestic product (GDP) | withholding tax

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