Exempt forex loans from withholding tax: Assocham

Posted on    02 August 2010


Exempt forex loans from withholding tax: Assocham


Industry body Assocham on Sunday demanded withdrawal of withholding tax on foreign currency loans to encourage corporates raise funds from abroad.

"Withholding tax on foreign currency loans (FCL) needs to be withdrawn immediately so as to make cost of such loans more competitive and reasonable," the chamber said.

The industry body has submitted a representation in this regard to Finance Minister Pranab Mukherjee.

Withholding tax is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government.

It said interest on foreign currency loan works out to be over 26 per cent which used to be exempted until fiscal 2000.


The Finance Act of 2001, however, withdrew this exemption under the Income Tax Act.

"Since then, industry has been demanding restoration of exemption in respect of interest paid on foreign currency loans but has been of no use," Assocham President Swati Piramal said.

She pointed out that withdrawal of this benefit has substantially increased cost of overseas funds since interest paid on such loans is subject to withholding tax at the effective tax rate of 26.77 per cent.


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