ibnlive » Business

Sep 21, 2012 at 01:40pm IST

Centre cuts tax on foreign borrowings by Indian companies

New Delhi: Finance Minister P Chidambaram on Friday announced that the Centre had cut tax on external commercial borrowings (ECB) by Indian companies to five per cent from 20 per cent. The reduction in tax will encourage Indian companies to raise funds from overseas markets.

The withholding tax liabilities on Indian companies, too, have been reduced to five per cent. This will apply to all borrowings between July 2012 and June 2015.

Chidambaram also approved the Rajiv Gandhi Equity Schemes, tailor-made to encourage first time investors. The investors will get 50 per cent tax rebate on investment under the Rajiv Gandhi Equity Schemes. The maximum investment that can be made under the scheme is Rs 50,000.

Former finance minister Pranab Mukherjee in his budget for 2012-13 in May had proposed to slash withholding tax from 20 per cent to five per cent across the board for all businesses.

To help the cash-starved sectors, Budget 2012-13 had opened access to ECBs to sectors like aviation, which can raise overseas funds as working capital for a period of one year under the sectoral ceiling of $1 billion.

Sectors like affordable housing, power (refinancing of rupee loans) and road (for maintenance of toll roads) were also given access to overseas loans in the Budget.

(With additional information from PTI)