Finance Ministry officials have told NDTV, the reduction in the rate of withholding tax will also apply to those rupee-denominated government securities (G-sec) and corporate bond investments, which the foreign institutional investors (FIIs) or the qualified foreign investors (QFIs) have transacted before June 1, 2013.
Finance Minister P Chidambaram has cut withholding tax on interest earned by FIIs as well as QFIs on investments into rupee denominated G-sec and corporate bonds, from June 1, 2013 till May 31st, 2015.
"There will be no restriction on investments. Old as well as new investments, both will attract 5% withholding tax", a finance ministry official told NDTV.
The official also pointed out the lowering of the tax rate will plug ''coupon washing'', a practice by foreign investors who route their investments via Mauritius and Singapore in order to avoid tax on their interest income.
"This will also facilitate genuine investors like pension and wealth funds who do not want to route their investments and would like to come in directly", the official added.
The Finance Ministry is hopeful this measure will give a boost to rupee denominated bonds, and attract foreign investors to long term debt funds.
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