Dividend received by an Indian company from a specified foreign company, in which the recipient Indian company holds at least 26% shares, is taxable at 15% whereas the dividend received by the same Indian company from other domestic companies is taxable at normal rates, i.e. dividend income getting taxed at different rates n the hands of same recipient. Therefore, Government has proposed to withdraw the concessional tax rate of 15% for dividend income to ensure parity of treatment u/s 115BBD from AY 2023-24, vide amendments introduced in Clause27 of the Finance Bill 2022 (budget 2022-23):
1. Section 115BBD of the Income Tax Act provides for a concessional rate of tax of 15 % on the dividend income received by an Indian company from a foreign company in which the said Indian company holds 26% or more in nominal value of equity shares (specified foreign company). This rate was aligned to the rate of tax provided under section 115-O of the Act.
2. Finance Act, 2020 abolished the dividend distribution tax provided in section 115-O to, inter-alia, provide that dividend shall be taxed in the hands of the shareholder at applicable rates plus surcharge and cess.
3. In order to provide parity in the tax treatment in case of dividends received by Indian companies from specified foreign companies vis-a-vis dividend received from domestic companies, it is proposed to amend section 115BBD of the Act to provide that the provisions of this section shall not apply to any assessment year beginning on or after the 1st day of April, 2023.
4. This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
Summary of Direct/ Indirect Tax Proposals of Union Budget 2022-23