DTC: Companies foreign income may not be taxed

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If one takes out the 20% minimum alternate tax blow, the gist of the amended Direct Taxes Code maintains status quo. But, sources said, there are also some goodies penciled into the Bill for companies.

One of the moves unlikely to be implemented pertains to the anti-tax-avoidance measure adopted by the Ministry of Finance in thesecond draft of DTC.

In particular, to taxing foreign income of companies controlled by residents of India as dividend.

“The Controlled Foreign Corporation provisions will not be implemented, which is good for Indian companies,” said the source.

The second draft of the DTC had proposed to introduce Controlled Foreign Corporation provisions so as to provide that passive income earned by a foreign company, which is controlled directly or indirectly by a resident in India, and where such income is not distributed to shareholders resulting in deferral of taxes, shall be deemed to have been distributed.

“Consequently, it would be taxable in India in the hands of resident shareholders as dividend received from the foreign company,” the revised DTC draft had stated in June 2010.

But the view from North Block sources is that the proposal may not find its way into the final draft of DTC to be tabled in the Parliament

Meanwhile, speaking after the Cabinet cleared the amended DTC, finance minister Pranab Mukherjee said it corporation tax is sought to be retained at the present level of 30%, but there will not be any surcharge or cesses over and above it.

The bill, approved by Cabinet, also seeks to impose minimum alternate tax(MAT) at 20% of the book profit, compared with 18% at present.

The first draft had proposed to impose MAT on assets, which drew strong criticism from the industry. The MAT on book profit has been maintained in the revised draft as well.

The first draft had also proposed to tax long-term savings like provident funds at the time of withdrawal. However, the revised draft exempted them, after the first draft drew flak. “Concerns were expressed for shifting from EEE (exempt, exempt, exempt) to EET (exempt, exempt, tax),” the finance minister said.