The government today said the concessional tax rate of 15 per cent on dividends received by Indian companies from foreign subsidiaries will continue without any sunset clause, a move that will ensure a stable tax regime.
The move would help in encouraging Indian firms to repatriate foreign dividends into the country.
In his maiden budget speech, Finance Minister Arun Jaitley said that concessional rate of tax at 15 per cent on dividends received by Indian companies from their foreign subsidiaries has resulted in enhanced repatriation of funds from abroad.
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"I propose to continue with this concessional rate of 15 percent on foreign dividends without any sunset date. This will ensure stability of taxation policy," he said.
This amendment will take effect from April 1, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.
According to budget documents, dividend distribution tax (DDT) is proposed to be applied to the amount of dividend distributed to shareholders by grossing up the said amount.
Kuldip Kumar, Executive Director (Tax and Regulatory) at PwC India said," under the existing law, the DDT - effective tax rate of 16.995 per cent) was applied on net amount of dividends actually paid to the shareholders."
"As per budget proposal, DDT is proposed to be applied to the amount of dividend distributed to shareholders by grossing up the said amount. Effectively this means, amount of dividends actually paid to the shareholder would go down by Rs 2.47 for every Rs 100 to be distributed to shareholder before calculating DDT," he said.
Reacting to the proposal, Suresh Surana, Founder, RSM Astute Consulting Group said: "This is very positive step for improving inflow of funds in India. However, taxability of such foreign dividend under Minimum Alternate Tax (MAT) may partially negate the benefit of concessional tax rate.
