Jul 12, 2012, 08.23 AM IST

FinMin may soon reduce withholding tax on ECBs

The Finance Ministry is working on a proposal to reduce the incidence of withholding tax on external commercial borrowings (ECB) to encourage Indian companies to raise funds from overseas markets.

Source: PTI

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The Finance Ministry is working on a proposal to reduce the incidence of withholding tax on external commercial borrowings (ECB) to encourage Indian companies to raise funds from overseas markets.

"We are trying to work out a mechanism to bring down withholding tax for entire ECB and long-term infrastructure corporate bonds," a senior Finance Ministry official said.

Former finance minister Pranab Mukherjee in his budget for 2012-13 in May had proposed to slash withholding tax from 20% to 5% 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," Mukherjee had said in the Lok Sabha in May.

To help the cash-starved sectors, the former finance minister 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 USD 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.