Currently, Section 115BBD of the Income Tax Act, 1961 provides
concessional tax rate on foreign dividend where the recipient
Indian company holds minimum 26 percent equity shares of a foreign
company. The tax rate prescribed on foreign dividend is 15 percent
plus applicable surcharge and cess.
The concessional tax regime in respect of foreign dividend was
introduced in 2012 with an intention to attract repatriation of
income earned by Indian corporates from their overseas
investments.
The Finance Bill 2022 proposes to take away the concessional tax
rate regime on foreign dividend with effect from April 1, 2022.
Accordingly, foreign dividend received by an Indian company would
be taxable at the rate of 25.17 percent (for companies opting for
the new tax regime) or at the rate of 34.94 percent (for companies
continuing under the old tax regime). Effectively, removal of
concessional tax rate would result in higher tax outflow to the
extent of 8-18 percent depending
