With effect from 1 October 2014, the Finance (No. 2) Act 2014 has amended section 194LC (i.e. interest on a foreign currency loan paid by an Indian company) of the Income-tax Act 1961. Consequent to the amendment, the concessional rate of withholding tax was extended to borrowings by way of any long-term bond, not limited to a long-term infrastructure bond.
Further, the finishing date of the period of borrowing eligible for concession under section 194LC, which was previously 1 July 2015, was extended to borrowings made before 1 July 2017.
In order to avoid increasing the compliance burden on the borrower/issuer of the bond, the Central Board of Direct Taxes (CBDT) with the approval of the central government, via Circular No. 15/2014 (F.NO.133/50/2014-TPL) dated 17 October 2014, has provided for the automatic approval of the central government in respect of the issue of long-term bonds including long-term infrastructure bonds by Indian companies which satisfy the following conditions:
- The bond issue is at any time on or after 1 October 2014 but before 1 July 2017;
- The bond issue by the Indian company should comply with the External Commercial Borrowings (ECB) regulations issued by the Reserve Bank of India (RBI);
- The bond issue should have a loan registration number issued by the RBI; and
- The term “long-term” means that the bond to be issued should have an original maturity term of 3 years or more.
However, the central government has also provided for automatic approval for interest rates which are within all-in cost ceilings specified under the ECB regulations.
