This Tax Alert explains a recent Press Release issued by the Central Board of Direct Taxes (CBDT) for tax treatment in the hands of nonresident (NR) investors of offshore Rupee Denominated Bonds (RDBs) to be issued by Indian corporates. Issue of such RDBs was recently permitted by the Reserve Bank of India (RBI) through Circular No. 17 dated 29 September 2015.
The Press Release clarifies that withholding tax rate (as also final tax rate) on interest income on such RDBs shall be 5%, which is the same as is presently applicable for offshore Dollar Denominated Bonds. The Press Release further clarifies that, capital gains arising on such RDBs due to appreciation of the Rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made, shall be exempt from capital gains tax. Also, the above referred tax treatment shall be provided through amendments in the Indian Tax Laws (ITL) in the forthcoming Budget of 2016-17.