New Delhi, Mar 17 (IANS): The withholding tax for foreign portfolio investors (FPIs) funds dealing in debt securities will continue to be levied at concessional rate of 5 per cent, the Finance Ministry said on Wednesday.

In a clarification issued on the issue, the ministry said that that there is no change in the said proviso even after amendment of Section 115AD vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and the concessional rate of tax of 5 per cent shall continue to be applicable for interest income on debt securities subscribed by FPI.

Media reports and experts had earlier pointed out that the provision providing for concessional income tax rate of 5 percent on debt return for foreign portfolio investors (FPIs) has been omitted after the amendment to tax laws.

The Finance Ministry said that Section 115AD of the Income Tax Act, 1961 inter alia contains provisions for taxation of income of FPIs. Proviso to section 115AD (1)(i) provides that the tax shall be chargeable at the concessional rate of 5 per cent on interest income referred to in section 194LD. So, even after amendment of Section 115AD the concessional rate specified in section 194LD remains, the Ministry said in the clarificatory press release.

The removal of concessional tax on FPIs would have impacted at least 4,000 international funds that collectively maintain debt paper of over Rs 4 lakh crore in value. It would have meant that FPIs interest income from debt instruments would have surged to 20 per cent with effect from April 1. Several tax consultancies and FPI advisors had also earlier sought clarification from the Finance Ministry on the issue.