Taxation of income from off-shore Rupee Denominated Bonds

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✤ The Reserve Bank of India has recently permitted Indian corporates to issue rupee denominated
bonds outside India. The matter of taxation of income from such bonds under Income-tax Act, 1961 has been considered by the Government.

✤ So far as taxation of interest income from these INR off-shore bonds in the case of non-resident investors is concerned, such bonds will attract a withholding tax of 5 per cent, which would be applicable in the same way as it is applicable for off-shore dollar denominated bonds.

✤ It has also been decided that the Capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made, would be exempted from capital gains tax. Legislative amendment in this regard will be proposed through the Finance Bill, 2016.

✤ As per the RBI guidelines, a company can raise up to USD 750 million per annum under the automatic route through rupee denominated bonds (popularly known as masala bonds). To issue bonds beyond this, it will require to take prior approval of the RBI.