Fund Taxation Alert 2023-03
India - End of concessional rate for Foreign Portfolio Investors investing in government and corporate bonds
India - End of concessional rate for Foreign Portfolio Investors investing in...
Background
On 1 February 2023, India’s Finance Minister, Nirmala Sitharaman, presented the Union Budget 2023-24 before the Parliament.
Currently, under Section 194LD of the Income-Tax Act, 1961, Foreign Portfolio Investors benefit from a concessional 5% withholding tax rate (excluding surcharge and health and education cess) in case of interest income earned from rupee denominated bonds of an Indian company, a government security or investment made in municipal debt securities.
The concessional rate is effective until 30 June 2023, but unfortunately an extension of its applicability was not included in the Finance Bill for 2023, which has been approved and enacted by the India government.
As such, Luxembourg-based funds may now potentially be subject to a higher withholding tax rate of 20% (plus applicable surcharge and cess).
KPMG Comment
The impact of these changes in each investment fund must be carefully analyzed and should you want to discuss further potential implications and available options, we in KPMG Luxembourg with the collaboration of KPMG India, would be available to assist you.
