Withdrawal of concessional rate of taxation on dividend income under section 115BBD

Section 115BBD of the 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.

[Clause 27]

 

Concessional tax on foreign dividends removed, aligning tax treatment of foreign and domestic corporate dividends going forward. Withdrawal of the concessional regime under Section 115BBD ends the special tax rate for dividends received by an Indian company from a specified foreign company, aligning their treatment with domestic dividends by making Section 115BBD inapplicable for assessment years beginning on or after the first day of April, 2023 so that such dividends are taxed in the shareholder's hands at applicable rates plus surcharge and cess.