The Finance Bill 2013-14 proposes levy of Final Withholding Tax at the rate of 20 per cent on profits distributed by unlisted companies to shareholders through buy-back of shares. Presenting the Union Budget in the Lok Sabha today, the Finance Minister Shri P.Chidambaram said some tax avoidance arrangements have come to notice and the above proposal is aimed at plugging the loopholes.

The Finance Minister also proposed to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 per cent to 25 per cent. However, the applicable rate will be the rate of tax stipulated in the Double Tax Avoidance Agreement(DTAA). Shri Chidambaram noted that the rate of tax on royalty in the Income Tax Act is lower than the rates provided in a number of double tax avoidance agreements. The above proposal is aimed at correcting this anomaly.

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(Release ID :92744)

Final withholding tax on buy back proceeds imposed; increased withholding on royalties and technical fees for nonresidents, subject to DTAAs. Proposal to impose a final withholding tax on distributions via buy backs by unlisted companies to curb tax avoidance, and to increase withholding on royalties and fees for technical services paid to nonresidents while deferring to rates in applicable double tax avoidance agreements to correct domestic treaty rate anomalies.