Restore Exemption of Withholding TAX on FCL - ASSOCHAM
THE Associated Chambers of Commerce and Industry of India (ASSOCHAM) has sought restoration of exemption on payment of withholding tax on Foreign Currency Loans (FCL) in a bid to make such loans much more competitive and reasonable.
In a representation made to Finance Minister, Mr. Pranab Mukherjee, the chamber has argued that withholding tax on FCL needs to be withdrawn immediately so as to make cost of such loans more competitive and reasonable.
ASSOCHAM President, Dr. Swati Piramal has, however, pointed out that interest on FCL works out to be over 26 per cent which used to be exempted until fiscal 2000. The Finance Act of 2001, however, has withdrawn the benefits of exemption under section 10(15)(4)(f) of the Income Tax Act. Since then, industry has been demanding restoration of exemption in respect of interest paid on foreign currency loans but is of no use.
Legal Corner Icon — the image was hosted by the publisher and was not captured.The ASSOCHAM President further pointed out that withdrawal of benefit of exemption under aforesaid section has substantially increased cost of borrowing funds from outside India, since interest paid on such loans is subject to withholding tax at the effective tax rate of 26.77 per cent.
The chamber has further stressed that Organization for Economic Co-operation and Development (OECD) also supports economic justification of interest on cross-border loans and, therefore, it is reiterated that the demand of ASSOCHAM has full economic justification for restoring exemption in respect of interest paid on foreign currency loans.