Clarification of Taxability of Dividend - PKC Management Consulting

Written By – PKC Desk, Edited By – Abhinand, Reviewed By – Aakash

If the Indian company distributes any dividend on or before 31.03.2020, then the Indian company shall be liable to pay DDT @ 20.556% as per the provisions of the Income Tax Act, 1961 (IT Act).
However, as per section 115A of IT Act, 1961, where a foreign company receives any dividend other than dividend on which an Indian company pays DDT, shall be liable to pay tax at the rate of @ 20% plus Surcharge and Cess.
In this case, Dividend received from the Indian Company on which DDT has been paid, shall not be taxed in the hands of foreign company.

During Budget 2020, the government has given a relaxation to domestic companies from DDT liability. Hence, DDT shall not be levied in the hands of Indian Company on distribution of dividends.
The consequential amendment has been made in the section 115A of IT Act, 1961 wherein if foreign company receives any dividend shall be liable to pay tax at the rate of @ 20% plus Surcharge and Cess.
As per Article 10 of Double Taxation Avoidance Agreement (DTAA) between India & USA, Dividends received from Indian companies shall be taxed in India at the rate of 15% of gross amount of dividend received.
As per Article 25 of DTAA between India & USA, taxes paid in India on dividend received from an Indian company shall be allowed as credit against US taxes if the dividend income is getting taxed in the US as well.