Instructions for deduction of tax at source from dividends payable/paid by domestic company to foreign companies after May 28, 1971 at the rate of 24.5 per cent specified in Part II of First Schedule to Finance (No. 2) Act, 1971

New Tax Rule: 24.5% Standard Deduction on Dividends to Foreign Companies, Replacing Previous Concessional Rates, Effective May 28, 1971.

The circular issued on June 19, 1971, outlines the revised tax deduction at source for dividends paid by domestic companies to foreign companies, effective after May 28, 1971. The Finance (No. 2) Act, 1971, mandates a uniform tax rate of 24.5% on such dividends, eliminating previous concessional rates. Previously, foreign companies could deduct 80% of dividends from closely-held Indian companies in priority industries, and 65% in other cases, resulting in effective tax rates of 14% and 24.5%, respectively. The new rule standardizes the deduction rate to 24.5% for all applicable dividends, ensuring full tax collection at the source.