DDT urgent Inquiry

what will be the tax implications of dividend payment by Indian company to foreign company
Replies (4)

In India the Comapny declaring and paying dividend are paying Dividend Distribution Tax (DDT).The DDT is not deducted from the amount of the dividend payble to the memebbers of the Comany like TDS but, as per the provisions of  section 115O of the Income Tax Act the DDT is paid byt the Company So the DDT is payble on the whole of the amount of Dividend to be didtributed to the members of the Comapny irrespective of Foreign and Dometsic memebers of the Comapny.Further as the DDT is paid by the dividend paying Comapny without deducting from the amount of divuidined payble to the memebers there is no any such provision the  submit Form 15 or like for No deduction of Tax or Lower deduction of Tax.

Keeping in view of the above it can be said that there will not be any implication of DDT on the Foreign Members ( share holders) however ,so far as DTAA Double Tax Avoidence Agreement /Treaty is concerned the Foreign memebers (Share Holders) shall have to take avilable  benefits in their respective Country if applicable. But in India the DTAA will not be considered as the TAX is not deducted from the amount payble to them.

thank you so much
You are welcome

1. Sec 115O puts the responsibility on the domestic company to pay tax on dividend paid from their accumulated profit. The effective rate of dividend comes to 20.56%. 
2. There is no distinction between shareholder being a foreign company or non-resident or a resident for that matter. 
3. Again it is an income which is subject to tax and such tax is paid by the domestic company hence no part of income is getting taxed in the hands of Non-Resident (in this case foreign company) hence the question of Double taxation will not arise in here. However, dividend which is an income of foreign company for which Indian company is paying tax (DDT), it should be reviewed that dividend in case of non resident and foreign companies should be based on DTAA and simply domestic companies should not be put under burden to pay tax on dividend income earned by the Non residents or foreign companies. 
4. Still an area for debate. I have expressed my view. This could be viewed from both the angles. Alternative views are possible.

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