Govt may extend tax holiday on dividends earned overseas

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Shruti Srivastava: New Delhi, Feb 11 2013, 00:41 IST

been trying to encourage companies to invest in the country for capital formation. Also, given the din over the generation of perceived black money, and its inability to bring in voluntary disclosure of income scheme (VDIS), the government is looking at more acceptable ways to bring such income back into the country.

According to the official, a relaxation in dividend tax rates would encourage companies, which use tax havens for routing black money, to plough back their income legally into the country.

Under Section 115BBD of the Income Tax Act, dividends received by an Indian company from a specified foreign company are taxed at the rate of 15 per cent if such dividend is included in the total income for the financial year 2012-13. Earlier, the rate was 30 per cent and it was slashed to 15 per cent to encourage repatriation of income.

M Lakshminarayanan, managing partner, Deloitte, said that though it is a good move, the results so far have not been very encouraging.

Very few companies have used the provision to bring back the profit. However, if these also known as controlled foreign corporations (CFC) rules are introduced in the Budget 2013-14, chances are that companies would use the tax provision to bring back the profit as the tax rate would be lower than what is applied under CFC rules.

CFC rules essentially help the government to limit artificial deferral of tax by using offshore low taxed entities. CFC rules are a part of the proposed Direct Taxes

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