Airport firms GMR, GVK for exemption from tax on interest

Airport companies such as GMR and GVK want the government to exempt them from withholding tax on payment of interest on overseas bonds having a maturity period of more than five years. As per Section 194LC and Section 194LD of the Income Tax Act, withholding tax needs to be deducted on income by way of interest on overseas bonds at the rate of five per cent.

The airport firms have argued that infrastructure companies generally have very long gestation periods and raise funds for longer duration and exemption from withholding tax would reduce their cost of funds. "Generally, these taxes are grossed up and issuer of bonds has to take the withholding tax hit on itself. This means that cost of borrowing goes up," an industry executive said.

This along with other suggestions to ease the financial burden of the sector is likely to be sent to the Finance Ministry in the next few days. The official quoted above said that airport developers need to raise funds going forward given the huge investment needed and hence the government should consider the proposal.

"Most infrastructure firms are going through a challenging time. They need support from the government," he noted. The airport developers have also pitched for reducing base corporate tax rate from 30 per cent to 25 per cent for all companies irrespective of turnover criteria.

They have stated that companies need to have surplus cash to create new infrastructure. "Apart from infrastructure sector this will also aid the growth in economy. Therefore, concessional tax should be there without having turnover criteria for infrastructure sector," the executive said. 194LC, 194LD, airport developers