The government on Thursday proposed an increase in the surcharge on dividend distribution tax from 5% to 10%. This means it will become more expensive for companies to distribute dividends.

The finance minister said in his Budget speech that he wants to plug loopholes in the payment of dividend distribution tax. “Some tax avoidance arrangements have come to my notice. Some unlisted companies have avoided dividend distribution tax by arrangements involving buyback of shares. I propose to levy a final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through buyback of shares,” he said.

But much to the relief of companies and shareholders, the concessional tax rate of 15% on dividends received from the foreign subsidiaries of Indian firms will be extended to one more year.

Also, any dividend distributed by these companies, to the extent of dividends received from the foreign subsidiary, will not be subject to dividend distribution tax.

“Removing double taxation on dividends received from overseas arms will reduce the burden on shareholders,” said N Chandrasekharan, CEO, Tata Consultancy Service.

Hindustan Times, New Delhi, 01-03-2013

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