The Hindu Business Line : Chamber urges Govt to restore tax benefit on ECB interest payments

IN a bid to help corporates to raise external commercial borrowings (ECBs) to go global, the Associated Chambers of Commerce & Industry of India (Assocham) has urged the Government to allow them to avail of 100 per cent tax exemptions on interest payment on such borrowings.

In a representation submitted to the Finance Ministry, the President of Assocham, Mr Mahendra K. Sanghi, said that tax exemptions in respect of interest paid on ECBs by domestic corporates would help them raise finances to fund their overseas ventures.

He pointed out that all external commercial borrowings documentation stipulate a standard clause that interest shall be paid on gross basis.

According to this clause, the borrower, for example an Indian company, would pay the withholding tax to the Government and also pay the full amount to the lender.

Mr Sanghi pointed out that ECB route has been considered a cheap source of funds for domestic companies but the Government withdrew tax deduction on interest paid on foreign borrowings in the Budget proposals of 2001-02.

This withdrawal of exemption has raised the cost of borrowings to the extent of tax deducted as the foreign lenders are insisting upon gross interest payment, i.e., without deduction of tax, the Assocham chief added.

More Stories on : Overseas Borrowings | Industry Associations | Taxation

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