The finance ministry has rejected the recommendations of the Deepak Parekh panel to exempt domestic infrastructure companies from paying withholding tax on interest paid on foreign borrowings.
Withholding tax varies from 10% to 40% depending on the country where loans are raised.
The proposal was also rejected since the government was currently focussing on removing tax exemptions and this would have meant a revenue fallout, said a financial ministry official. ?The idea is to trim exemptions while finding innovative ways to finance infrastructure,? he added. Besides, the revenue department is also not convinced that removing withholding tax would lead to cheaper funds for domestic borrowers, finance ministry sources said.
The decision comes at a time when the finance ministry is planning to review and reduce various exemptions, which cost the exchequer Rs 2,35,191 crore. This is over 50% of the total tax collection last fiscal.
Sources however said the revenue department was not keen to replace capital gains tax with securities transaction tax (STT) on transactions in unlisted equity shares as the rates of the two are very different. STT is levied at the rate of 0.1% while capital gains tax at rates of 20% and 30%, depending on its time frame.
Apart from exemption from withholding tax, the Parekh Committee has also suggested rationalisation of dividend distribution tax and permitting refinancing of rupee loans raised by infrastructure companies with external commercial borrowings. The finance ministry is expected to give its inputs on these aspects shortly. It may be noted that the finance ministry has also recently rejected aviation industry body Federation of Indian Airline?s proposal to exempt airlines from paying withholding tax on lease rentals.