Taxability of Dividend Income
Dividend Income Section 56
The provisions relating to the year of taxability of dividend are contained in Section 8 of the Act, which are as follows –
(1) Any dividend declared or distributed or paid by a company under section 2(22) of the Act shall be deemed to be the income of the previous year in which it is so declared, distributed or paid;
(2) Any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.
Taxability of deemed dividend under section 2(22).
Ans: Deemed dividend under section 2(22) shall be taxed as follows –
(1) Dividend under section 2(22)(a) to 2(22)(d) :
(a) In hands of shareholders : It shall be exempt except where the aggregate amount of dividends exceeds 10,00,000, where such excess is chargeable to tax @ 10% as provided in Section 115BBDA.
(b) In hands of company : The company will be liable to pay tax on distributed profits @ 15% on the gross amount of dividends + 12% Surcharge + 4% HEC i.e. 20.5552941% on the net amount of dividends.
(2) Dividend under section 2(22)(e) :
(a) In hands of shareholder : Exempt from tax under Section 10(34).
(b) In hands of company : The company is liable to pay dividend distribution tax @ 30% + 12% Surcharge + 4% HEC i.e. 34.944% under Section 115-0 of the Act.
Tax on certain dividends received from domestic companies [Section 115BBDA] :
(1) Dividend in excess of 10,00,000 - Chargeable to tax @ 10% : Where the total income of a specified assessee, includes any income in aggregate exceeding 10,00,000, by way of dividends [other than dividend under Section 2(22)(e)] declared, distributed or paid by a domestic company or companies, the income-tax payable shall be aggregate of –
(a) the amount of income-tax calculated on the income by way of such dividends in aggregate exceeding 10,00,000, at the rate of 10% ; and
(b) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of dividends.
(2) No deduction admissible :
No deduction in respect of any expenditure or allowance or set-off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends.
Explanation: "Specified assessee" means a person other than, —
(i) a domestic company; or
(ii) a fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in Section 10(23C)(iv)/(v)/(vi)/(via); or
(iii) a trust or institution registered under section 12A or section 12AA.
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