Withholding tax on Foreign Borrowings has been reduced.

Despite a series of controversial reforms undertaken recently the government is unfazed. It has decided to continue with its growth supportive steps ignoring any political ramifications. In that regard, it has formally approved a cut in the tax rate on interest paid to overseas lenders. The proposal to cut the tax rate was already made in the Union Budget. But the formal announcement came on Friday. It may be noted that the withholding tax on foreign borrowings has been reduced to 5% from the earlier figure of 20%. The tax holiday period will range from July 2012 to June 2015. A cut in the tax rate will attract more debt refinancing via External Commercial Borrowings (ECBs). This will attract capital into the country. It will also reduce interest rates as the tax benefits get passed on to the local borrowers. The move will be particularly beneficial to the companies from the infrastructure sector because they borrow heavily from the overseas markets.