India won't cut withholding tax on govt bonds: Official

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The government has no plan to reduce withholding tax for foreign investors on government bonds as demand for these bonds are strong, a senior finance ministry official said on Thursday.

However, the government will reduce withholding tax from 20 per cent to 5 per cent on foreign investment in long-term infrastructure bonds and on external commercial borrowings in certain sectors like power, airline, roadways among others, the official said.

"We will not do this (reduce withholding tax) with government bonds as there is already enough demand for that. If there is demand for my products I will in fact raise prices," the official said.

Foreign investors pay withholding tax of as much as 20 per cent, depending on the tax treaty India holds with the corresponding country.

A similar tax is applicable in many countries including Indonesia and South Korea.

It is a tax levied on income which includes interest and dividends from securities owned by non-residents.