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The Finance Ministry is working on a proposal to reduce the incidence of withholding tax on external commercial borrowings (ECBs) to encourage Indian companies raise funds from overseas markets.
“We are trying to work out a mechanism to bring down withholding tax for all ECB and long-term infrastructure corporate bonds,” a senior Finance Ministry official said. Withholding tax is the tax deducted at source on payment made to non-residents and it is the responsibility of the payer to deposit the same with the Government.
The former Finance Minister, Mr Pranab Mukherjee, in his Budget for 2012-13 in May had proposed to slash withholding tax from 20 per cent to 5 per cent across the board for all businesses.
“To further facilitate access to such borrowings, I propose to extend the lower rate of withholding tax to all businesses,” Mr Mukherjee had said.
To help the cash-starved sectors, Mr Mukherjee had opened access to ECBs to sectors like aviation, which can raise overseas funds for working capital for a period of one year under the sectoral ceiling of $1 billion.
Sectors such as affordable housing, power (refinancing of rupee loans) and road (for maintenance of toll roads) were also given access to overseas loans in the Budget
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