Tax on Dividend from Foreign Company !
Dividend income received from a foreign company
Dividend from an Indian company is exempt from tax under section 10(34) of Income Tax Act 1961, as the company declaring such dividend has already deducted dividend distribution tax before paying the dividend. However there is no such exemption in case of dividend from foreign company.
Dividend received from a foreign company is charged to tax in India as well as in the country to which the foreign company belongs.
If the foreign dividend has suffered double taxation, then the taxpayer can claim double taxation relief either as per the provisions of Double Taxation Avoidance Agreement entered into with that country by the Government of India or can claim relief as per section 91 if no such agreement exists.
To understand the tax treatment of the dividend received from a foreign company, the taxpayer should keep in mind the provisions of Income-tax Law as well as the provisions of Double Taxation Avoidance Agreement entered into with that country.
Rate of tax to dividends received from foreign specified company
As discussed earlier, dividend received from a foreign company is taxed in the hands of a resident taxpayer at the normal rates applicable to his income. Normal tax rate applicable to an Indian company is 30% plus surcharge and cess as applicable. Hence, dividend received from a foreign company is charged to tax at 30% in the hands of an Indian company.
However, section 115BBD provides a concessional rate of tax in respect of dividend received by an Indian company from a foreign company in which the Indian company holds 26% or more in nominal value of the equity share capital.
By virtue of section 115BBD, dividend received by an Indian company from a foreign company in which the Indian company holds 26% or more in nominal value of the equity share capital is charged to tax at a flat rate of 15% plus surcharge and cess as applicable.
It should however be noted that, in the above case no deduction on account of any expenditure or allowance will be allowed from the amount of the dividend covered under section 115BBD.
In other words, the gross amount of dividend without deducting any expenditure/allowance will be taxed at the rate of 15% plus surcharge and cess as applicable.
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