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Approval of loan agreements/ long term infrastructure bonds and rate of interest for the purpose of Section 194LC of the Income-tax Act, 1961
September, 25th 2012
                                   PRESS RELEASE

                              MINISTRY OF FINANCE

                                                                 21st September, 2012

Subject: Approval of loan agreements/ long term infrastructure bonds
         and rate of interest for the purpose of Section 194LC of the
         Income-tax Act, 1961- regarding.

In order to enable low cost foreign borrowings by Indian companies, the Finance
Act, 2012 had amended the Income-tax Act to lower the tax on such borrowings.
The amendment to section 115A and insertion of section 194LC in the Income-tax
Act provide that the interest income of a non-resident investor will be taxed at the
reduced rate of 5 per cent instead of the existing rate of 20 per cent. Further, the
liability of the Indian company to withhold tax on such income would also be at the
reduced rate of 5 per cent. This lower rate of taxation will apply to interest paid to a
non-resident by an Indian company for money borrowed in foreign currency from a
source outside India either under a loan agreement or by way of long-term
infrastructure bonds. This is also subject to the condition that the borrowing is made
during the period from 01.07.2012 to 30.06.2015 and such borrowing and the rate of
interest are approved by the Central Government.







With a view to lower the compliance burden and reduce the time lag which would
arise on account of case-by-case approval, the Central Government has decided
to grant approval to all borrowings by way of loan agreement and long-term
infrastructure bonds that satisfy certain conditions. No specific approval in such
cases would be required. Broadly, borrowings under a loan agreement or by way of
issue of long-term infrastructure bonds that comply with External Commercial
Borrowings (ECB) regulations as administered by the Reserve Bank of India (RBI)
would be eligible for availing of the benefit of this concessional tax regime. Further,
in case of long-term infrastructure bonds the end use of the proceeds of such bond
issue should be for the infrastructure sector as defined by RBI under its ECB
regulations. The details of the conditions to be satisfied are elaborated in the circular
on approval of loan agreements/ long-term infrastructure bonds under section
194LC of Income ­tax Act, dated 21/09/12 issued by the Central Board of Direct
Taxes (CBDT).





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