Aiming to garner greater footfalls from Foreign Institutional Investors (FIIs) in the debt market, the Government on Tuesday said foreign investors will pay only 5 per cent withholding tax on interest earned from such investments till May 2015.
“In order to provide broad based incentive and encourage greater off-shore investment in debt market by FIIs and QFIs, it has been decided that the benefit of lower withholding tax [i.E. 5 per cent instead of 20 per cent] shall be available in respect of interest on investment made in bonds issued by Indian companies and Government securities,” the Finance Ministry said in a statement.
Notifying the decision, it said the reduction in rates and simplification of the withholding tax norms is expected to deepen the Indian debt market and accelerate the pace of growth of the Indian economy.
The benefit will be available on interest income of Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) accruing between June 2013 and May 2015 irrespective of the date of investment, the Ministry added.
In 2013-14 Budget speech, Finance Minister P Chidambaram had announced that necessary changes are proposed to provide benefit of reduced withholding tax to cases where investment is made by a non-resident in rupee denominated long term infrastructure bonds.