UAE- Listed firms to have dividend distribution policy

(MENAFN- Khaleej Times) Q: NRIs are not able to determine whether dividends issued by Indian companies are adequate or not. Some companies issue very small dividends which give a very poor return on investments. Is anything being done to protect the interests of investors?

- C. Rangaswami, Doha

A: A company is not required to declare dividends merely because it has earned adequate profits in a financial year. The board of directors takes a decision whether to declare dividends or not and how much to declare. However, listed companies are now subject to certain directions issued by the Securities and Exchange Board of India (Sebi) which requires such companies to announce a dividend distribution policy to their shareholders in their annual reports and on their websites.

The policy will have to indicate the circumstances in which a shareholder can expect dividend and the financial parameters which will need to be considered before declaring such dividends. Each company will also have to list out the factors, both internal and external, which would influence the declaration of dividends. If dividend is not to be declared, the company should spell out the policy to explain how the retained earnings will be used for the benefit of the company.

Q: You had mentioned about the revision of the India-Mauritius tax treaty. I want to know whether this will apply only in respect of capital gains tax pertaining to share transactions or whether it will also apply in respect of securities and derivative products?

- K.C. Malhotra, Dubai

A: It has been confirmed by government authorities that the revised India-Mauritius tax treaty will apply only in respect of capital gains or profits arising from transactions in equity shares. Other securities, such as compulsorily convertible debentures or optionally convertible debentures, will continue to be governed by the original treaty provisions. The government has emphasised that the source-based taxation will only apply to shares. Residence-based taxation will continue to apply as in the past for derivatives and non-equity securities. In short, the change which is proposed under the revised treaty will only affect capital gains and profits made in respect of equity shares.

Q: ''Digital India'' has become a buzzword as the Indian government has made it one of the pillars of its economic policies. How will this help the average citizen and at what cost will the projects be implemented?

- F.K. Basu, Abu Dhabi

A: ''Digital India'' is an umbrella programme which seeks to give to every Indian access to the Internet. It will focus on building digital infrastructure for providing government services on the Web and mobile platforms. This is expected to digitally empower citizens by expanding Internet connectivity to rural areas. It is expected that about $7 billion will spent in 2016-17 and almost $20 billion over the next five years on the ''Digital India'' programmes. These figures include the amounts spent by state governments on information technology services, software development, data centres, devices, etc. These programmes will also create additional jobs in business process outsourcing services, software support, consultancy services, etc.

Q: My son was working in India during the financial year ended in March 2016. During that year, he was also sent on deputation to the United States where he worked for about six months. He paid tax to the American government on the salary he earned there as he was treated as a resident of the US for tax purpose. Will he have to show this income which he earned in America in his Indian tax return which he will be filing in July this year?

- P.S. Wagle, Bahrain

A: Under section 6 of the Income-tax Act, your son would be resident in India for the financial year 2015-16 if he had spent more than 365 days in India in the preceding four financial years and has spent more than 59 days in India during the financial year 2015-16. Being a resident of India, he is liable to tax on his world income.

However, he would also be governed by the provisions of the India-US Double Tax Avoidance Agreement (DTAA). If he is a tax resident of the US under the provisions of this agreement, tax would be payable by him in America on the income earned there. Such income cannot be taxed again in India. Indian courts have accepted and acknowledged the split residency position in many cases. Courts have held that a person who has qualified as a tax resident of the US is entitled to claim exemption from tax in India in respect of salary earned in that country as per Article 16.1 of the DTAA.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper''s policy.