Remove withholding tax for pvt banks on foreign loans: Assocham

New Delhi, Feb 8 (UNI) For funding infrastructure projects, all private banks should be allowed to raise foreign currency borrowings, exempting these from paying a withholding tax on interest charged on such borrowings, industry body Assocham said today.

''Public sector banks whenever raise borrowings in foreign currencies from their overseas branches, they are exempted from levy of such a withholding tax on their interest,'' the chamber President Venugopal N Dhoot said in a note to the Finance Ministry and RBI.

The chamber sought removal of this anomaly by urging the Finance Ministry to review this maltreatment against private banks in its forthcoming Budget proposals for 2007-08 which Dr Patil committee has already recommended for.

The withholding tax on the interest paid on such borrowings has in a way affected the cost structure of borrowings and given rise to increase in rates for lending by banks, Mr Dhoot said.

Its note has argued saying, ''It is well recognised that foreign currency borrowings are a cost effective source of funds for corporates and infrastructure financing.

While the public sector banks are exempted (in case of borrowings from their own overseas branches) from the levy, all others are subjected to it, Assocham said.

The corporates sourcing directly the foreign currency markets are also subjected to such a levy.

In addition, the chamber has also emphasised a case for reviewing and removal of such a withholding tax arguing that it will ensure a level playing field to all institutions, and provide cost effectiveness through foreign currency borrowings.

It will also attract inflow of funds into India and develop forex based treasury management services, besides promoting the concept of equity, it said.

The Assocham has also pointed out that section 80LA (1) deals in deduction with respect to certain incomes from Offshore Banking Units (OBU), saying that this section limits the benefits and offers only to Scheduled Banks of Indian origin in extending tax treatment.

This also needs to be review to ensure sufficient level playing fields.

UNI