PBC Letter to FBR on Intercorporate Dividend Exemption

We are also clarifying that post the recent change in the Indian tax law, ICD is not subject to tax in the hands of another company provided it in turns declares a dividend of at least the same amount within the stipulated time period. [...] As per the Indian taxation laws (Section 80M of the Indian Income Tax Act, 1961), dividend received by a domestic company is exempt from tax to the extent that dividend received is distributed by the recipient company to its shareholders. [...] Company A As per section 80M, the law permits a deduction of INR 1,000 in the computation of income of B Co provided B Co has up streamed the INR 500 INR 500 dividend income to A Co and Individual F at least 1 month before the due date of filing its tax return of the year in which the dividend was received. [...] In 1997, India introduced the Dividend Distribution Tax (‘DDT’) regime wherein dividend income was exempt in the hands of the shareholders but the company paying the dividend was required to pay DDT at a flat rate (irrespective of the tax rate applicable to respective shareholders). [...] (1) Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company or a foreign company or a business trust, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of incom.