No withholding tax: Power Min

The forthcoming budget is likely to withdraw withholding tax on overseas investment in power. According to Power Ministry the removal of withholding tax will accelerate overseas lending to the sector. Withholding tax is charged on the repatriation of income from equity or debt. Typically, an overseas investor can approach the tax authorities of its home jurisdiction to offset the tax deducted by Indian authorities. The power ministry’ feels that the ability of the domestic financial system to fund long-gestation power projects is limited by sectoral caps set by the Central Bank. The power sector will need $400 billion of investment during the 12th Plan. Indian borrowers raising funds overseas find their costs are higher on account of withholding tax while overseas lenders find compliance costs going up if they have to approach their own tax authorities for credit when Indian tax authorities deduct withholding tax. The tax is 22 per cent.