Section 115BBD- Withdrawal of concessional Tax rate on dividend income

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.

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Note on Clause 27 of Finance Bill 2022

Clause 27 seeks to amend section 115BBD of the Income-tax Act relating to tax on certain dividends received from foreign companies.

The said section, inter-alia, provides that in case of an Indian company whose total income includes any income by way of dividends declared, distributed or paid by a foreign company, in which the said Indian company holds twenty-six per cent. or more in nominal value of the equity share capital, such dividend income shall be taxed at the rate of fifteen per cent.

It is proposed to insert a new sub-section (4) 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.

This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.

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Extract of Clause 27 of Finance Bill 2022

27. Amendment of section 115BBD.

In section 115BBD of the Income-tax Act, after sub­section (3), the following sub-section shall be inserted with effect from the 1st day of April, 2023, namely:––

“(4) The provisions of this section shall not apply to any assessment year beginning on or after the 1st day of April, 2023.”.

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