The government has reportedly rejected the proposal to withdraw tax on inter-corporate dividends in the upcoming Budget 2026-27. The proposal was aimed at restoring tax neutrality for dividends distributed within corporate group structures, but it has not moved forward, reportedly due to policy review and IMF-related concerns.
This development is particularly important for holding companies, subsidiaries, associated companies, and corporate groups where profits are moved through dividend distribution. Tax on inter-corporate dividends often creates an additional tax cost within group structures, especially where the underlying profit has already been taxed at the company level before being distributed as dividend.
For corporate groups, the practical impact is that group-level tax planning will remain important. Companies may need to carefully evaluate dividend flows, group structuring, retained earnings, inter-company arrangements, and the overall tax cost of profit repatriation. The rejection of this relief shows that the government’s immediate priority remains revenue protection rather than corporate tax neutrality.