Gireesh Bhalla : Income of infrastructure debt fund, tax on inter corporate dividend received from foreign companies

Income of Infrastructure Debt Fund [Sec. 10(47)] :- Clause (47) has been inserted in section 10 with effect from June 1, 2011 (i.e. with effect from the assessment year 2012-13).  It provides enabling power to the Central Government to notify any income infrastructure debt fund which is set-up in accordance with the prescribed guidelines.  Once notified, the income of such a debt fund would be exempt from tax.  However, such fund willl have to submit return of income under section 139.

Other related amendments – The following amendments have been made to augment long-term, low cost funds from abroad for the infrastructure sector-

1) Any interest received by a non-resident from the aforesaid notified infrastructure debt fund shall be taxable at the rate of 5 per cent on the gross amount of such interest income.

2)  Tax shall be deducted at the rate of 5 per cent by the aforesaid notified infrastructure debt fund on any interest paid by it to non-resident.

Tax On Inter-Corporate Dividend Received From Foreign Companies (Sec. 115BBD) :- Under the extant provisions, dividend received from foreign companies is taxable in the hands resident shareholders under section 56(2) under the head “Income from other sources” at his applicable dividend is taxable at the rate of 30 per cent (+SC + EC + SHEC).

Amendment – A new section 115BBD has been inserted with effect from the assessment year 2012-13 to provide that where total income of an Indian company includes any income by way of dividends declared, distributed or paid by a foreign specified company, then such dividends shall be taxable a the rate of 15 percent (+SC + EC + SHEC) on the gross amount of dividends.  No expenditure in respect of such dividends shall be allowed.

Foreign specified company – Foreign specified company means a foreign company in which the Indian company holds 26 per cent or more in nominal value of the equity share capital of the company.