Aiming to prevent tax avoidance arrangements, Finance Minister P. Chidambaram, on Thursday, proposed to levy final withholding tax at the rate of 20 per cent on profits distributed by unlisted companies to shareholders through buy-back of shares.

“Some unlisted companies have avoided dividend distribution tax by arrangements involving buyback of shares.

I propose to levy a final withholding tax at the rate of 20 per cent on profits distributed by unlisted companies to shareholders through buyback of shares,” Mr. Chidambaram said while unveiling budget proposals for 2013-14 in Parliament.

The Finance Minister also proposed to increase the rate on payments by way of royalty and fees for technical services to non-residents from 10 per cent to 25 per cent.

“Another case is the distribution of profits by a subsidiary to a foreign parent company in the form of royalty.

The rate of tax on royalty in the Income Tax Act is lower than the rates provided in a number of DTAA.