Section 115BBD: Tax on Dividends Received from Specified Foreign Companies
Important current position: The concessional 15% tax regime under section 115BBD does not apply from assessment year 2023-24 onwards. Sub-section (4), inserted by the Finance Act, 2022 with effect from 1 April 2023, expressly withdraws its application for assessment years beginning on or after that date. The provision remains relevant for earlier assessment years and related proceedings.
Section 115BBD of the Income-tax Act, 1961 historically provided a special tax rate for dividends received by an Indian company from a foreign company in which it held a substantial equity interest. It formed part of Chapter XII, dealing with determination of tax in certain special cases.
What did section 115BBD provide?
Sub-section (1): Special rate of 15%. Where the total income of an Indian company included dividends declared, distributed or paid by a specified foreign company, income-tax was calculated as the aggregate of (a) tax at 15% on those dividends and (b) tax otherwise payable on the balance of its total income. Applicable surcharge and cess were additional, as prescribed for the relevant year.
Sub-section (2): No deduction. No deduction for expenditure or allowance under any provision of the Act was permitted when computing dividend income eligible for this special regime. Accordingly, the 15% rate applied to the relevant gross dividend income.
Definitions under section 115BBD(3)
Dividend - section 115BBD(3)(i)
The expression "dividends" had the meaning assigned to "dividend" in section 2(22) of the Income-tax Act, 1961, but excluded dividends falling within section 2(22)(e), which addresses specified payments treated as deemed dividends.
Specified foreign company - section 115BBD(3)(ii)
A "specified foreign company" meant a foreign company in which the Indian company held 26% or more in the nominal value of its equity share capital. This ownership threshold was essential to the former concessional treatment.
When was the 15% concessional rate applicable?
| Assessment period | Treatment under section 115BBD |
|---|---|
| AY 2012-13 to AY 2022-23 | Special 15% rate for qualifying foreign dividends, subject to the provision and applicable surcharge and cess. |
| AY 2023-24 onwards | Section 115BBD is inapplicable under sub-section (4); foreign dividends are assessed under the otherwise applicable income-tax provisions. |
Effect of the Finance Act, 2022
The Finance Act, 2022 inserted section 115BBD(4), stating that the section shall not apply to any assessment year beginning on or after 1 April 2023. This followed the earlier abolition of dividend distribution tax under section 115-O and the general shift to taxing dividend income in shareholders' hands.
For the relevant later assessment years governed by the 1961 Act, an Indian company receiving foreign dividends must consider the applicable corporate tax regime, the nature of the income, available deductions, foreign tax credit and relevant treaty provisions, rather than claiming the former 15% concession. The availability of a deduction or credit depends on the applicable statutory conditions.
Related provisions and practical considerations
- Section 2(22): Defines dividend for the purposes of the Act, subject to context-specific exclusions.
- Section 57: Contains rules governing deductions against income from other sources, including restrictions relating to dividend income.
- Section 80M: Provides a conditional deduction for specified inter-corporate dividends to prevent cascading taxation, subject to its requirements.
- Sections 90, 90A and 91: May be relevant for treaty relief or unilateral relief from double taxation where conditions are met.
- Section 115BBD(4): Makes the historical special-rate provision inapplicable from AY 2023-24.
Legislative history
Section 115BBD was inserted by the Finance Act, 2011 (Act 8 of 2011), section 17, effective 1 April 2012. An earlier restriction confining its operation to specified assessment years was omitted by the Finance (No. 2) Act, 2014 (Act 25 of 2014), section 38, effective 1 April 2015. The Finance Act, 2022 subsequently inserted sub-section (4), effective 1 April 2023, ending application of the concession from AY 2023-24.
Official reference and further reading
For the statutory text, including sub-section (4), consult the Income Tax Department's official section 115BBD page. The department's guidance on taxation of dividends also explains the withdrawal of the concession. For filing and current compliance services, refer to the official income-tax e-filing portal.
This article explains the historical provision and its withdrawal. For older assessment years, verify the law applicable to that year; for tax year 2026-27 and later, consider the Income-tax Act, 2025 and applicable transition provisions.