Interest payable to Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) on rupee denominated corporate bonds or government securities
The proposal made in the Finance Bill 2013, to provide that the concessional rate of TDS on payment of interest will be available where a non-resident or a foreign company has deposited any sum of money in foreign currency in a designated account and the said money is utilized after converting in rupees to subscribe to any long-term infrastructure bonds issued by the Indian company has been dropped.
It is proposed that subject to certain conditions, interest payable to FII or a ‘Qualified Foreign Investor’ on or after 1 June 2013 but before 1 June 2015 on a rupee denominated bond of an Indian company; or a government security shall be charged to tax at the rate of 5% (increased by the applicable surcharge and education cess). Consequential amendments have been made to the provisions providing for rate of tax applicable to the income of the FII or a ‘Qualified Foreign Investor.
The tax rates on such interest are proposed to be aligned with the withholding tax rates. However, the higher rate of 20% continues to apply if the FII/QFI has not obtained PAN.
Tax Residency Certificate (TRC)
- Currently a non-resident is required to furnish a certificate of his being a resident of any country outside India, containing such particulars as have been prescribed. It is being proposed that the condition of the certificate containing such particulars be dropped and that the non-resident furnish a certificate of his residence obtained by him from the Government of that country or specified territory.
- Many non-residents were facing difficulties in obtaining TRC containing all the prescribed particulars. To alleviate these difficulties, it is now proposed that non-residents would be required to only obtain a TRC that certified their residence in their home country. The requirement of obtaining TRC containing prescribed particulars has been deleted with effect from tax year 2012-13.
- The proposal in the Finance Bill 2013 to provide that such TRC will be necessary but not a sufficient condition for claiming any relief under the tax treaty has been substituted to provide that the non-resident shall provide such other documents and information as may be prescribed.
Withholding tax rate on interest on long-term infrastructure bonds
A provision had been introduced by Finance Act, 2012, to allow a concessional tax rate of 5% * on interest payments to non-residents on certain approved loans and on foreign currency-denominated long-term infrastructure bonds, so long as the interest rate did not exceed a specified limit. However, a general provision exists to provide that if the non-resident does not furnish PAN (which is the tax registration number in India), the applicable withholding tax rate would be 20%*.
Now, an exception has been made to this general provision with effect from 1 June, 2013, under which the concessional withholding tax rate of 5% would apply to payment of interest on long-term infrastructure bonds even if the non-resident payee has not obtained a PAN. The exception has not been extended to approved loans, which seems to imply that non-resident recipients of interest on such approved loans would have to continue to obtain and provide a PAN in order to enjoy the concessional rate of withholding tax.
TAN not to obtain for TDS on transfer of immovable property
It has been proposed that a person who is required to deduct tax from consideration for the transfer of immovable property will not be required to obtain a Tax Deduction Account Number.
Commodity derivatives trading
Trading in commodity derivatives in a ‘recognised association’ shall not be regarded as a ‘speculative transaction’, if certain conditions that have been prescribed, are fulfilled.