The Reserve Bank of India (RBI) has decided regulate domain holding companies floated by business groups and also the companies that own non-banking finance companies (NBFC). The move was a consequence of the fact that NBFCs had regularly complained about the acute shortage of funds and some had received liquidity support from the government in consultation with RBI as a result, said sources close to the development.
But the central bank’s own inspection and tax reports from the income tax department and registrar of companies have shown that many of these NBFCs have transferred surplus funds earned in good times to their holding companies, at present which are regulated under the Companies Act, in the form of loans or dividends.
Therefore, this mechanism acts as a tax haven for the income of the entire business group. Dividend is taxed as dividend distribution tax at 15 per cent in the hands of the company offering the dividend. If the same company retains the amount as profit, it will have to pay tax at 30 per cent.
But the central bank’s own inspection and tax reports from the income tax department and registrar of companies have shown that many of these NBFCs have transferred surplus funds earned in good times to their holding companies, at present which are regulated under the Companies Act, in the form of loans or dividends.
Therefore, this mechanism acts as a tax haven for the income of the entire business group. Dividend is taxed as dividend distribution tax at 15 per cent in the hands of the company offering the dividend. If the same company retains the amount as profit, it will have to pay tax at 30 per cent.
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