Interest payable on offshore Rupee Bonds by Indian entities to be exempted from Income Tax

September 17, 2018: The Ministry of finance Monday exempted from income tax the interest payable on rupee-denominated bonds issued outside India by a company or a trust to a non-resident or a foreign company, a move aimed at increasing dollar inflow.

The interest would be exempt on rupee-denominated bond issued outside India during the period from September 17, 2018, to March 31, 2019, the Finance Ministry said in a statement.

As per I-T law, interest payable by an Indian company or a business trust to a non-resident, including a foreign company, on rupee-denominated bond issued outside India before the July 1, 2020, was liable for concessional rate of tax of 5 percent.

In this background, low-cost foreign borrowings through off-shore rupee denominated bond have been further incentivised to increase the foreign exchange inflow, the ministry said.”it has been decided that interest payable by an Indian company or a business trust to a non-resident, including a foreign company, in respect of rupee-denominated bond issued outside India during the period from September 17, 2018 to March 31, 2019, shall be exempt from tax, and consequently, no tax shall be deducted on the payment of interest in respect of the said bond under section 194LC of the (Income Tax) Act,” the ministry added.

The Reserve Bank of India (‘RBI’) has recently permitted Indian companies to issue rupee denominated bonds overseas (‘RDB’ or ‘offshore RDB’).

Legislative amendments in this regard shall be proposed in due course, it added.