India reduced taxes on overseas borrowings by local companies on Friday, adding to the wide-ranging economic reforms announced by the government in recent days even as one of its key allies pulled out of the coalition largely in protest against allowing foreign direct investment in the retail sector.
The tax rate on the interest paid by local companies to foreign lenders will be 5 percent, compared to the current 20 percent, the Finance Ministry said. This rule was proposed in the March budget, but not implemented so far.
The tax cut will be applicable from July 2012, and run to June 2015. The move will encourage Indian companies to borrow from abroad.
Also, the government announced the Rajiv Gandhi Equity Savings Scheme, an initiative intended to support first-time equity investors. The retail investors will get a 50 percent deduction on new equity investments of up to INR 50,000 from taxable income. But such investment will be subject to a minimum three year lock-in period.
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