FM halves dividend tax on earnings from overseas arms

Looking at improving investment climate for corporates, Finance Minister Pranab Mukherjee today proposed halving tax on dividends received by an Indian company from its foreign subsidiary to 15%.

"It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15% tax on dividends," Mukherjee said in his Budget speech.

The tax rate on these dividends stands at 30%.

"I do hope these funds will now flow to India," he added.

According to Deloitte Haskins & Sells Partner N C Hegde, it would provide a big boost to India Inc and its international aspirations.

"This is expected to lead to larger inflows of incomes into the country and would augur well both for the shareholders and the economy," he added.

It will pave the way for the creation of Indian MNCs and create the proper framework for putting them on the global map, Hegde added.