Budget Reactions: Budget a hit with low DDT, income repatriation : RSM Astute

Suresh Surana
RSM Astute Consulting Group

Section 115BBD of Income Tax Act (the Act) provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) @ 15% (plus surcharge of 5% and education cess of 3%) if such dividend is included in the total income for the Financial Year 2012-13 i.e. Assessment Year 2013-14. This provision was introduced as an incentive for attracting repatriation of income earned by residents from investments made abroad. 

The Finance Bill, 2013 proposes to extend the concessional tax rate of 15% (plus surcharge of 10% and education cess of 3%) on dividend received from specified foreign company for one more year i.e. for the financial year ending 31 March 2014. Further, it is to be noted that any dividend distributed by the Indian company in the same year, to the extent of dividends received from the foreign company, shall not be subject to Dividend Distribution Tax.

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.

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