In a move to attract more foreign inflows to fund the widening current account deficit (CAD), Finance Minister, P Chidambaram has slashed tax deduction at source (TDS) on interest payment to 5 per cent against 20 per cent earlier for foreign institutional investors (FII) on investments made by them in Government securities and rupee-denominated corporate bonds. Presently, the ceiling for FII investment in G-secs is pegged at $25 billion and for corporate bonds, it is around $51 billion.
The government has been liberalizing the foreign investment policy and is keen to promote foreign investments to bridge the widening current account deficit which has widened to record high of 6.7 percent of GDP for the third quarter ended December 2012.
Recently, the government constituted a plan for giving clear definitions to FDI and FII to remove the ambiguity in foreign investments. This committee is constituted in accordance with the budget announcement, to examine and work out the details of the application of the principle followed internationally for defining the foreign investments.
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