News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 9 years ago  » Business » Now, it's easier for India Inc to get dividends from abroad

Now, it's easier for India Inc to get dividends from abroad

By Dev Chatterjee
July 15, 2014 10:15 IST
Get Rediff News in your Inbox:

BudgetProviding relief to Indian companies with profitable subsidiaries abroad, such as Hindalco and Tata Motors, the Union Budget has maintained the 15 per cent concessional tax on dividends received and removed the sunset clause of March 31 this year.

This is good news for companies such as Tata Power, ICICI Bank, Bank of Baroda, Godrej Consumer Products, Marico, Dabur, Tata Global and Coromandel Agro, all of which receive dividend from foreign subsidiaries.

“The proposed amendment to provide a lower rate of tax, without limiting it to a particular assessment year, is a positive amendment.

"It is applicable only if the Indian company holds at least 26 per cent in the share capital of the foreign company and, therefore, does not have a general application.

"The amendment will encourage companies to repatriate dividend received from foreign companies in India,” says Rohit Jain, partner, Economic Laws Practice.

In May this year, Novelis, owned by Aditya Birla Group’s Hindalco, announced it would repatriate $250 million (Rs 1,500 crore) to its parent company as dividend.

For the last two years, Tata Motors’ subsidiary Jaguar Land Rover has been repatriating $257 million (Rs 1,545 crore) a year as dividend.

This dividend has helped Tata Motors post profits, as its India business is seeing a slowdown.

Indian companies prefer dividend to royalty fees, as royalty received from a foreign subsidiary is taxed at 30 per cent, as business income.

An Indian company can claim credit of taxes withheld, if any, in the jurisdiction of the foreign subsidiary, depending on the provisions of the applicable tax treaty, says Jain.

Through the past few years, a large number of Indian companies have invested abroad.

While some investments such as Tata Motors’ in Jaguar Land Rover and Hindalco’s in Novelis have worked, others such as Tata’s Corus acquisition and Bharti Airtel’s Zain acquisition haven’t made money for the Indian companies.

Apart from initial acquisitions costs, Indian companies are also giving guarantees on loans taken by foreign special purpose vehicles that make acquisitions.

Many Indian companies, including Hindalco, have received transfer pricing tax notices from the income-tax department for 'earning' fees from guarantees given to foreign subsidiaries.

However, these Indian companies have challenged this at appellate authorities, arguing the fees earned were 'notional'.

Please click here for the Complete Coverage of Budget 2014 -15

Get Rediff News in your Inbox:
Dev Chatterjee in Mumbai
Source: source

Moneywiz Live!