While presenting the Budget proposals on July 6,
2009, the Union Finance Minister announced
the government's intention to introduce New Direct Tax Code.
Fulfilling this promise, the Finance Ministry on August 12, 2009,
released the draft of Direct Tax Code (DTC), along with discussion
paper for public comments.
The DTC seeks to simplify the current tax law. The code
shall replace the nearly five-decade-old Income Tax Act, 1961. Debate
and discussions are expected on the DTC between now and the
winter session of Parliament when the Government intends to
introduce the Bill in Parliament.
Tax Rates
Indian banks would be taxed at the general corporate tax
rate, which is proposed to be reduced from 30% to 25%. Any
dividends distributed by the banks to their shareholders would attract
Dividend Distribution Tax (DDT) at 15% of such dividends. Thus,
the effective tax rate would be 25% as increased by DDT on
dividends actually paid out.
Foreign banks are currently taxed at 40% (plus surcharge).
The DTC proposes to levy the general corporate tax rate of 25% to
foreign corporates as well. However, in addition, foreign bank
branches shall also be liable to pay a branch profits tax at 15% on taxable
profits, reduced by the corporate tax of 25%. This tax is payable,
irrespective of whether any profits are repatriated to the head office or
not. Thus, the effective tax rate for foreign banks having branches in
India would be 36.25%. |
