CA JAIKRIT MALIK (CHARTERED ACCOUNTANT ) (71 Points)
03 November 2011Sir ,
Greetings for the day
1)My query is Can an Indian Company( i.e Hospitality ) take loan from a foreign Bank (UK) ?
2) FEMA and RBI guidelines and restrictions on the above.
CA. Anuj Gupta
(Practices in NRI Int.Tax FEMA TP FDI/FIPB & FCRA)
(7019 Points)
Replied 03 November 2011
Yes Indian company can take loan from Foreign Bank, but that shall be subject to External Commercial Borrowings(ECB)Regulations issued by RBI.
Anuj
+91-9810106211
femaquery @ gmail.com
CA JAIKRIT MALIK
(CHARTERED ACCOUNTANT )
(71 Points)
Replied 03 November 2011
SIR ,
According to my R & d on it. Is it suitable for above case or not ? Can you please guide me sir.
As per my knowledge , according to Fema & RBI Guidelines the above mentioned corporate is eligible for taking loan from Foreign Bank.
( Please find the attach document ).
The proposed loan from UK Bank will be in the form of External Commercial Borrowing (ECB) to be taken under the automatic route of approval currently in vogue as notified by Ministry of Finance, Government of India..
As per ECB Guidelines are as :
As regards exemption under the Act, paragraph numbers 16 and 17 of Part I of the guidelines on Policy and Procedures for ECBs for 1996-97 (Press 6note F.No.4(48)/96-ECB, dated 19.6.1996) issued by Department of Economic Affairs, Ministry of Finance are relevant and they are extracted below :-
“16. Exemption from withholding tax – All interest payments and fees etc. related to external commercial borrowings would be eligible for withholding tax exemptions under section 10(15)(iv)(b) to (g) of the Income-tax Act, 1961. Exemption under section 10(15)(iv)(b),(d) to (g) are granted by Department of Economic Affairs
while exemption under section10(15)(iv)(c) is granted by Department of Revenue, Ministry of Finance.
17. Approval under FERA – After receiving the approval from ECB Division, Department of Economic Affairs,
Ministry of Finance, the applicant is required to obtain approval from the Reserve Bank of India under the
Foreign Exchange Regulation Act, 1973 and to submit an executed copy of the Loan Agreement to this Department for taking the same on record, before obtaining the clearance from RBI for drawing the loan.
Monitoring of end-use of ECB will continue to be done by RBI.”
But the above mention Corporate is Falls under the Automatic Route ,therefore according to the guidelines under Automatic Route and Approval Route for ECBs were explained by the RBI in Circular No.60 of 31 st January, 2004 (RBI/2004/34- A.P.(DIR Series).
Paragraph dealing with “All-in-Cost Ceilings” reads as under :-
“All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Moreover, the payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost”,
It is, therefore, evident that ECB under “Automatic Route’ does not amount to automatic tax exemption.
CAclubindia
