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CMA Final · Direct Tax Laws and International Taxation · Interest and Fees

A foreign company has total income for the tax year consisting of: dividend of Rs 4,00,000 from an Indian company (not from an IFSC unit) and other business income of Rs 6,00,000 taxed at rates in force. Under section 207 of the Income-tax Act, 2025, which statement about its tax on the dividend and deductions is correct?

The dividend is taxed at a flat 20% and no expenditure or allowance under sections 28 to 58 can be deducted against it. The 10% rate applies only to dividends from an International Financial Services Centre unit, and the business income is taxed separately at rates in force.

  1. ADividend is taxed at 20%, and expenditure under sections 28 to 58 cannot be deducted in computing the dividend incomeCorrect
  2. BDividend is taxed at 10% because it is received from an Indian company
  3. CDividend is taxed at 20% after deducting expenses incurred to earn it
  4. DDividend is taxed at rates in force along with the business income

Explanation

Section 207(1) Table serial 1 taxes such dividend at 20% (10% applies only to dividend from an IFSC unit). Section 207(5) bars deduction of expenditure or allowances under sections 28 to 58 in computing this income. Hence expenses cannot reduce the dividend, making the 20% with expenses allowed option wrong.

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