New Delhi: Overseas investors buying rupee bonds issued by Indian entities will not need to pay tax on their interest income, the government said on Monday, as it attempts to encourage capital inflows and support the rupee.

The Central Board of Direct Taxes (CBDT), the apex direct tax body, said in a statement that interest payable to a non-resident or a foreign company regarding offshore rupee bonds issued from Monday till 31 March 2019 will be exempt from tax, and hence, no tax will be deducted on interest payment at source.

The CBDT statement said legislative changes will be proposed in due course.

Entities like NTPC Ltd and Housing Development Finance Corp Ltd have sold rupee bonds to raise funds from abroad.

It helps the borrower avoid currency risks which are borne by the investor.

The ongoing rupee depreciation has hurt industries using high quantities of imported raw materials.

The domestic price of auto fuel, which is linked to international dollar price of the commodity, has also risen in recent months.

CBDT said finance minister Arun Jaitley had announced “a multi-pronged strategy to contain the current account deficit (CAD) and augment the foreign exchange inflow" after Prime Minister Narendra Modi’s review of the state of economy last Friday.

“In this background, low-cost foreign borrowings through off-shore rupee denominated bond have been further incentivised to increase the foreign exchange inflow," said the policy making body.

The domestic currency has weakened by 11.57% against the dollar since April.

It ended trading on Monday at 72.51 against the dollar, plunging 67 paise from the previous close of 71.84.

Rupee bonds were allowed 5% concessional tax on interest payment in 2017 for the period of 1 April 2016 to 1 July 2020.

Close