Dividend tax on foreign payouts to be capped at treaty rate: Bombay HC

The Goa Bench of the Bombay High Court has ruled that tax on dividends paid by Indian companies to their foreign parents must be capped at the rate prescribed under tax treaties instead of the one under domestic law.

- MONIKA YADAV

The late November ruling, accessed this week, came in a case involving Colorcon Asia, the Indian subsidiary of United Kingdom-based pharma ingredients company Colorcon. The subsidiary had paid over ₹82 crore as dividend distribution tax (DDT) on dividends sent to its British parent between FY16 and FY19.

According to industry experts, the ruling is likely to trigger refund claims by multinationals, reopening several settled matters relating to past dividend payouts.

Before April 1, 2020, companies paid tax before distributing dividends to shareholders. This tax was called DDT, charged under Section 115-0 of the Income-Tax Act, 1961, which required companies here to pay an additional tax on dividends declared or distributed.

Though the tax was paid by the company, dividends were exempt in the hands of shareholders.