In his Budget speech, Union finance minister Arun Jaitely allowed the concessional rate of tax to continue at 15% on dividends received by Indian companies from their foreign subsidiaries.
The concessional rate of tax remaining at 15% has resulted in an enhanced repatriation of funds from abroad. “I propose to continue with this concessional rate of 15% on foreign dividends without any sunset date,” Jaitley said in his budget speech. “This will ensure stability of taxation policy.”
This concession, first introduced in April 2012 and extended in 2013 and 2014, would have expired in April 2015.
However, with the finance minister allowing this concession to continue, it ensures that companies like Reliance Industries Ltd, Tata and Bharti Airtel would be able to bring back the dividends from their subsidiaries to India.
“It encourages Indian subsidiaries acquiring foreign companies not to accumulate the wealth on foreign soil,” said Girsih Vanvari, co-head, tax, KPMG.
This is a critical move to ensure that funds continue to flow to India. Another senior tax consultant explained that for availing this concession, an Indian company should have a minimum of 26% stake in its foreign subsidiary.
Further, the Indian company should have been registered with the Registrar of Companies in India.