The Finance Ministry has clarified that interest income on rupee-denominated offshore bonds, or masala bonds, of Indian companies will attract a withholding tax of 5 per cent.
“In the case of non-resident investors, it is clarified that withholding tax at the rate of 5 per cent, which is in the nature of a final tax, would be applicable in the same way as it is applicable for offshore dollar-denominated bonds,” a Central Board of Direct Taxes (CBDT) release said.
The tax treatment of such bonds is now at par with that of external commercial borrowings and domestic corporate bonds.
Further, any capital gains from rupee appreciation between the dates of issue and redemption against the foreign currency in which the investment is made will be exempt from tax.
The CBDT said amendments to the Income-Tax Act, 1961 to this effect will be included in the Finance Bill 2016. The clarification on the tax structure of such bonds is expected to give a boost to the fund-raising plans of domestic companies.
In September, the Reserve Bank of India had allowed Indian companies to issue rupee-denominated, or masala bonds, in overseas markets.
On October 27, Housing Development Finance Corporation received an in-principle approval from its board to raise $750 million through these bonds but said it was awaiting clarity on the tax structure.