INSUBCONTINENT EXCLUSIVE:
dividend.
The onus is on companies to tax dividends of their investors before the pay-out
at, or as per the domestic tax rates.
Also, even if they are taxed at lower rates under the tax treaties, that can only be applied to FPIs
that are ultimate beneficiaries and not just passthrough vehicles registered in locations like Singapore or the Netherlands
withhold tax at 20 per cent or at the higher rate of 30 per cent or 40 per cent as per TDS (tax deducted at source) rates prescribed in the
corporate and international tax at KPMG.
Following the removal of dividend distribution tax (DDT), companies would be required to tax the
dividends and then distribute it to investors, including FPIs
While companies and individuals could be taxed at up to 40 per cent, the rate for FPIs would be 20 per cent
But FPIs that are acting as passthrough vehicles could face tax up to 40 per cent.
The problem, say people who are monitoring the issue, is
what would be the tax rate applicable for the FPIs
a quandary of the tax rate applicable.
Meanwhile, tax experts said many FPIs would be able to set off taxes against their capital gains tax
higher rates, the FPIs could offset the same against their capital gains tax for subsequent months or claim the excess as a refund
The bigger problem could be for private equity investors who do not have regular annual income to set off the higher taxes levied on
said.
Earlier, the DDT was around 20 per cent in the hands of the company, which meant this was a pure cost
Any investor or the holding company that got dividend under that rule would not have been able to set it off that against liability in their
home country.
After the change announced in the budget to remove the DDT, FPIs will be able to set off the tax paid on dividends either in
their home country or in India.
The issue is that if companies deduct higher taxes, they will be required to file returns here and, in some
cases, claim refunds, which may take time
Industry trackers said this could also lead to litigation as the taxman could question these transactions.
Companies taxing dividends also