India fixes upper cap for availing withholding tax benefits for foreign investors

Foreign investors will be eligible to benefit from lower withholding taxes for debt only if the rate of interest on the bond issued by a firm does not exceed 500 basis points (bps) above the base rate of State Bank of India, the Finance Ministry said in a notice on Tuesday.

The details come after the government in April cut tax rates for foreign investors on interest income from government and corporate debt accrued between June 1, 2013 and May 31, 2015.

If the coupon paid is above the specified cap, foreign investor would need to pay the higher withholding tax that applied before the government's measure.

For bonds issued before July 1, 2010, the SBI base rate on July 1, 2010 will be used as the benchmark. For bonds issued on or after July 1, 2010, the benchmark will be the SBI base rate on the date when the bond was issued by the company.

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