Govt may extend tax holiday on dividends earned overseas

An official source told The Indian Express the finance ministry will “continue with the reduced 15 per cent tax on the dividends received by companies from overseas companies where they have a shareholding of above 26 per cent”. The changes will be made as part of the budget proposals for 2013-14, the source said.

Companies have not been very keen to plough back the profit earned overseas into the country as they already pay a tax on income abroad. Taxing the same in India would tantamount to double taxation. Further, the rate of taxation is also very high, discouraging them to repatriate the money. The rates abroad are as per tax treaties or that applicable for domestic jurisdiction.

“Corporate India has become global only recently. If the government wants to encourage companies to plough back profit back into the country, the necessity is that overseas dividend should not be liable to tax in India on the same lines as the domestic companies,” Dinesh Kanabar, chairman tax, India operations, KPMG, said.

He said that most companies, especially in the software sector are earning huge income overseas and have the ability to bring investment in the country. However, a high tax on such income acts as a deterrent. “The overseas dividend should be treated on a par with domestic dividend,” Kanabar said.

The government has

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