The alternate minimum tax (AMT) on Limited Liability Partnerships (LLPs) and concessional rate of tax on dividend received from overseas subsidiaries of Indian companies will continue even in the proposed Direct Taxes Code. The finance ministry has decided to include these provisions in the final DTC Bill after its vetting by the standing committee of Parliament.
In the DTC Bill introduced by finance minister Pranab Mukherjee in August last year, the alternate minimum tax (AMT) for LLPs was not included. Besides, there was also no provision for the concessional 15% tax on dividend received by an Indian company from its foreign subsidiary. The rate proposed in the Bill was 30%. However, in the Budget this year, the government proposed these changes and now, these will be included in the DTC Bill, official sources said.
As per the Budget 2011 proposal, all LLPs will pay AMT at 18.5%. The levy was specifically introduced for LLPs to plug the revenue leakage under the Income-Tax Act, and was made effective from April 1, 2011 for financial year 2011-12 and assessment year 2012-13. The tax rate of 18.5% was on the adjusted total income of LLPs, which would work out to be 19.05% inclusive of education cess.
LLP is a new business structure that has hybrid features of a partnership firm and a corporate body. It has the twin benefits of a company’s limited liability and the flexibility of a partnership firm. The LLP Act, 2008, was notified in April, 2009.
In order to help in attracting more foreign investment, the government recently allowed FDI in LLPs in sectors like mining, power and airports.
The government plans to introduce DTC, which would replace the extant, archaic I-T Act from April next year. However, since the Parliamentary Standing Committee on Finance is unlikely to submit its report in the current Winter Session, the deadline could be missed.
In this year’s Budget, Mukherjee also halved tax on dividends received by an Indian company from its foreign subsidiary to 15%. ?It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15 per cent tax on dividends,” he had said in his Budget speech. This will also find way into the DTC Bill.
The rules of operating liaison offices in India will also be tightened in the DTC.
The government feels that many of these companies generate income in the country but have not opened branches, to avoid paying taxes.
