Chennai, March 27 (IANS): The Central Board of Direct Taxes (CBDT) has clarified that dividends declared and paid by a foreign company outside India in respect of shares which derive their value mainly from assets in India will not be deemed to be taxable in India.

The CBDT's circular issued on March 26 puts at rest the concern raised by many on the treatment of dividend declared and paid by a foreign company under section 9(I)(i) of the Income Tax Act.

According to CBDT, declaration of dividend by a foreign company outside India does not have the effect of transfer of any underlying assets located in India.

"It is, therefore, clarified that the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of the provisions of explanation 5 to section 9(I)(i) of the Act," it said.