Foreign portfolio investors will lose a preferential tax rate on interest from Indian government securities and corporate and foreign currency bonds, a senior tax official said on Saturday.
Foreign portfolio investors have been enjoying a lower 5% tax on interest earned on bonds since 2013, making investments in the country more attractive. Ending this treatment would require them to pay a 20% tax on the interest income from July 1.
“It has not been extended,” Central Board of Direct Taxes chairman Nitin Gupta told media reporters. “Our viewpoint is that it was a revenue foregone by the government.
“We have a certain tax treaty with any jurisdiction which permits the Indian government to deduct tax at a certain rate. We had foregone that right. It was helping the other government, and the other jurisdictions,” Gupta said in an interview.
The exemption does not benefit any Indian company, he said.
Gupta said regular registration by charitable trusts will help India in gathering data on beneficial owners and comply with standards from the Financial Action Task Force, a global money laundering and terrorism watchdog.
The task force, reviewing India this year, is “much concerned about trusts because it becomes a route… for illegal activities, money laundering,” he said.
The exemption does not benefit any Indian company, he said.
India’s $550 billion budget, unveiled on Wednesday, proposes a series of changes for charitable trusts that include regular registration to access tax benefits.
