The working group on taxation of non-resident Indians has recommended that foreign companies should be taxed at the same rate as domestic companies. The group submitted its report to Finance Minister Jaswant Singh on Thursday.

"If the recommendations of the Kelkar task force regarding the exemption of dividend tax is accepted, the tax rates for foreign companies should also be brought at par with the rates for domestic companies," according to the report of the group headed by Vijay Mathur, director-general (international taxation), set up by the Central Board of Direct Taxes.

On withholding tax on remittances, the group has recommended an option be provided to the deductor to remit 80 per cent of the amount on his own on the condition that the concerned bank undertakes to hold the balance 20 per cent as 'good for payment' and to pay the amount of tax, which may finally be determined on such remittances.

In any case, such a liability is not expected to go beyond 20 per cent of the remittance, the report points out.

Based on the principle of tax equality, the group has recommended abolition of certain exemptions available to non-residents, including the status of 'not ordinarily resident'.

The Vijay Kelkar task force on direct taxes too had recommended abolition of the NOR status.

In order to incentivise flow of funds to parent Indian companies to their subsidiaries abroad, the group has recommended allowance of underlying tax credit.

In this scheme, credit would be given for not only tax withheld at source on the dividend pay-out by the overseas subsidiary but also for the tax suffered on distributed profits, an official release said.

The panel has also recommended several administrative measures, including setting up of a task force on emerging issues to make timely suggestions to the CBDT on cross-border transactions as and when they emerge.