Thursday, August 18, 2016

Tax on Dividend received from Specified Foreign Entities

Dividend received from foreign companies is taxable under the head “Income from Other Sources” at the rate applicable at assessee level. For example, foreign dividend received by an Indian company shall be taxable @ 30% plus Surcharge and Cess as applicable.

However, U/s 115BBD which was introduced w.e.f. 1.4.2012, Dividend received from specified foreign company is taxable @ 15% plus surcharge and Cess. Specified foreign company means a foreign company in which the Indian company holds twenty six percent or more in nominal value of the equity share capital of the company.

However, no deduction in respect of any expenditure or allowance shall be allowed to the assessee while computing its income by way of dividend.

While preparing Annual Business Plan (ABP) of the company, total income is divided into –

a. Income in the form of Dividend to be received from Indian companies which is exempt U/s 10(34)

b. Income in the form of Dividend to be received from Specified foreign companies which is taxable at special rate of 15 percent plus Surcharge and Cess &

c. Income in the form of Business or Profession.

To calculate the tax at ABP level, company deduct various deduction under Chapter VI-A under the Income from Business or Profession and on balance amount it calculate tax @ 30 percent plus 15 percent on Income from Dividend received from specified foreign company. On arrived tax amount, company will calculate Surcharge and Cess as applicable.

Also, there is set of provision under the ection 1150(1A)(i) on tax paid on specified foreign dividend. For example, Indian Company is having subsidiary company in Singapore and Mauritius. During the financial year 2015-16, Indian company declares dividend of Rs. 1000/- while it received dividend of Rs. 200/- and Rs. 500/- respectively from Singapore and Mauritius. To arrive the Dividend Distribution Tax (DDT) in India, Company will reduce Rs. 200/- and Rs. 500/- respectively from Rs. 1000/- dividend declared and on balance dividend of Rs. 300/- company will pay DDT.

Also, there is chance that foreign dividend is charged to tax in India as well as in foreign country. If foreign dividend has suffered double taxation then assessee can opt relief under section 90 where agreement with foreign country exist in the form of DTAA. In the absence of any such agreement, assessee can opt for relief under section 91.

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