Union Budget: Concessional rate dumped, foreign dividends now under tax ambit

New Delhi, Feb 2 (KNN) Concessional rate of tax on dividends received by Indian companies from foreign subsidiaries will be done away with from April 1, 2022-23, a change that may hamper global expansion of Indian companies including start-ups and compel some firms to move their headquarters out of India.

At present, dividends received by Indian companies from their foreign subsidiaries are subject to a concessional tax rate of 15 per cent under Section 115BBD of the Income Tax (I-T) Act. The provisions of this section shall not apply from assessment year 2023-24 onwards, according to the Finance Bill.

“Clause 27 seeks to amend Section 115BBD of the I-T Act relating to tax on certain dividends received from foreign companies,” the Bill stated. 

“The said section, inter-alia, provides that in case of an Indian company whose total income includes any income by way of dividends declared, distributed or paid by a foreign company, in which the said Indian company holds 26 per cent or more in nominal value of the equity share capital, such dividend income shall be taxed at 15 per cent," according to the Bill.

This means, dividends from foreign entities will be taxed at the applicable corporate tax rate. This will adversely impact all Indian companies, including holding companies, that have overseas subsidiaries in which they hold a stake of 26 per cent or more. (KNN Bureau)