Exempt foreign earnings from income tax: Assocham

NEW DELHI: Industry body Assocham today suggested that Indian companies' earning from overseas firms, in which they hold over 10 per cent stake, should be exempted from income tax.

The move, the chamber said, would help Indian entrepreneurs bring back their foreign exchange income earned outside India and invest it domestically.

It has suggested a provision in the Draft Tax Code to enable recipients of dividends and capital gains from sale of shares in foreign companies, in which Indian entity has over 10 per cent equity stake, be exempted from income-tax.

Indian industry is becoming globally competitive and this has necessitated setting up of subsidiaries or joint ventures, it said.

"However, these companies are reluctant to bring back the profits earned by their foreign subsidiaries in the form of dividends paid to their Indian holding companies, since the dividends are taxable at the rate of 35 per cent," it said.

Similarly, the Indian holding companies do not repatriate the capital gains on share sales, since the same is taxed at 20 per cent, the chamber said.

India requires huge investment in core and infrastructure sectors like energy, telecommunications, water supply and distribution, roads, housing.

One of the important sources of funds for this purpose is the wealth created by Indian businesses in other countries, Assocham President Swati Piramal said.

"It is of prime importance that this source of funds is channelised in a proper manner for stepping up the pace of economic development in our country," she said.