In order to increase the size of returns from huge investments made abroad by Indian firms, the Reserve Bank of India (RBI) some tax exemptions on such returns.
RBI wants to increase the size of such returns, which form part of the current account of the Balance of Payment, in order to address the rising deficit in the account.
The central bank suggested at a meeting of the inter-ministerial committee on overseas investment to exempt dividend received from the overseas joint ventures (JVs) or wholly owned subsidiaries of Indian companies from tax.
The union finance minister extended the concessional rate of tax (15 per cent) on these dividends for another year Â— up to the 2014-15 assessment year in the budget 2013-14.
RBI mentioned that inflows from huge investments made abroad by Indian firms had been minuscule and hence it makes sense to give tax benefits.
RBI also suggested allowing multi-layer structure for Indian companies overseas. It says firms should be allowed to have structures with step-down subsidiaries as holding companies or special-purpose vehicles. These structures are currently not allowed under the Foreign Exchange Management Act. The RBI proposals have been sent to the Department of Revenue for consideration.