The double taxation on dividends paid by the parent company as well as its subsidiary will be a thing of the past with the Budget for 2008-09 proposing to do away with it.
Currently, a domestic company is liable to pay 15 per cent dividend distribution tax, as a result of which dividend is sometimes taxed twice in the hands of a subsidiary company and its parent company.
To help domestic companies to efficiently structure their business, the Budget proposed that if a parent company pays dividend to its shareholders, tax on it would be reduced by an amount of dividend received by the company from its subsidiary.
The provision is subject to the fact that the subsidiary company has paid tax on dividends and the domestic company is not a subsidiary of any other company.
A company would be a subsidiary of another company, if it holds more than half of equity. The Budget also raised short term capital gains tax to 15 per cent from 10 per cent to make it on par with DDT.