Plan to remove Dividend Distribution Tax is positive

One of the measures that will bring cheer to the corporate sector and encourage foreign investments in India is the removal of the dividend distribution tax (DDT) in a multi-tier corporate structure.

One of the measures that will bring cheer to the corporate sector and encourage foreign investments in India is the removal of the dividend distribution tax (DDT) in a multi-tier corporate structure.

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In his budget speech on Friday, the finance minister took steps to allow corporate firms access funds and promote higher foreign investments in more areas.

The minister proposed to lift the DDT in a multi-tier corporate structure. The regulation for venture capital funds (VCF) to invest in the only nine specified sectors is proposed for removal.

The minister proposed to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies to India at a lower tax rate of 15% as against the tax rate of 30% for one more year i.e, up to March 31, 2013.

At present, an Indian company distributing dividend is required to pay DDT of 15% (plus surcharge and cess) resulting in an effective rate of 16%.