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INDIA
BUSINESS WORLD -
JUNE 2004
THE MONTH THAT WAS
INTEREST
PAID TO OCB IN MAURITIUS TAXABLE HERE
The Authority for Advance Rulings (AAR) recently held that interest
on debentures paid to an investor, who is a resident of Mauritius,
is subject to withholding tax in India, unless it is specifically
exempted. Mere approval from the Reserve Bank of India (RBI)
for the issue of such securities to a non-resident does not
imply approval for tax exemption, the AAR said. In this case,
a Chennai-based private company had allotted partly-convertible
debentures to Weststar Investment Holdings, an Overseas Corporate
Body (OCB) incorporated in Mauritius. The Indian company had
obtained RBI approval for payment of interest on debentures
at a rate not exceeding 14% and only to the extent of the profits.
During the year ended March 31, '02, as the interest liability
was more than the profits, the entire profits were payable as
interest to the Mauritius-based investor.
The Indian company
had approached the AAR to ascertain whether it would be liable
to deduct tax at source for this particular year. It admitted
that under Indian tax laws, payment of interest to a non-resident
on borrowings utilised in India is taxable in India and the
payer is required to deduct tax at source.
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