In a pre-budget memorandum, the chamber has pointed out that in most cases dividend received by domestic companies is now tax exempt as it is not included in the computation of taxable income. However, there are still many cases where double or multiple taxation of dividend is going on.

For instance, where a domestic company receives income by way of dividend from another domestic company and distributes that dividend to its shareholders, it will be subject to additional tax again under section 115(O).

Further, if the shareholder happens to be a another domestic company, it will be liable to additional tax again when it distributes that dividend on which additional tax has already been paid twice.

Such multiplicity of taxation is creating hardshipfor investment companies, Ficci has stated. Therefore, such double taxation should be done away with.The federation has further stated that total exemption should be given in respect of dividend received from foreign companies, as such dividends are taxed in the hands of shareholders.

The chamber feels that at a time when the government has taken a pragmatic approach in exempting tax on dividends in the hands of shareholders, it is necessary to allow tax exemption to Indian companies in respect of dividend income from foreign companies. Ficci adds that such a decision has assumed significance in the emerging global scenario when Indian companies are setting up joint ventures abroad.

It has further pointed out that dividend income on units of Unit Trust of India or in respect of units of mutual funds also continues to be taxed except to the extent it is exempted from taxation under section 80 L of the Income Tax Act. Ficci feels such discriminatory tax treatment in respect of such dividend is unfair andunwarranted, and therefore such income should be totally exempt from taxation.

Alternatively, the chamber feels UTI and mutual funds should be subjected to additional tax of 10 per cent on their distributed profits.