MNC dividends pour post scrapping of distribution tax
companies (MNCs) or firms with high foreign holdings have been doling out liberal dividends since the removal of the dividend distribution tax (DDT) in April 2020. Tax experts and market participants said the scrapping of DDT, which results in dividend income getting taxed in the hands of the recipient or the shareholder, has made such payouts a more tax-friendly way of distributing cash for the MNCs.
In FY23, the dividend earned by foreign promoters and other overseas investors was nearly ₹1.24 lakh crore compared to ₹53,600 crore in FY20 or ₹53,500 crore in FY19.
Till FY20, companies were required to pay Dividend Distribution Tax at an effective rate of 20.56%.
With liability to pay taxes on dividends earned shifting to shareholders, tax experts said the situation augurs well for multinationals and other companies with promoters registered in tax-friendly foreign jurisdictions. They end up paying lower taxes in such countries with which India has tax treaties.
«Lower tax rates ranging from 5% to 15% can be explored by the foreign promoters or investors if one satisfies certain conditions specified under tax treaties between India and various countries,» said Tapati Ghose, partner of Deloitte India.
«In order to avoid double taxation, taxpayers may also claim foreign tax credits in the overseas jurisdiction for the taxes paid on dividend income in India.»
For instance, 3M India, a subsidiary of US-based 3M Company, which had not paid dividends in the past 20 years, paid an 8,500% dividend in FY23. Foreign promoters held 75% in the company.
Britannia Industries, in which foreign promoters own 50%, paid 7,200% divided in FY23 compared to 3,500% in FY20 and 1,500% in FY19. Bosch, the Indian subsidiary of German engineering
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