Taxation of Dividend and Deemed Dividend - Income Tax - Ready Reckoner - Income Tax

Taxation of Dividend Deemed Dividend from FY 2020-21 Onwards The Dividend Distribution Tax was removed by the Finance Act 2020 , Now the dividend will be taxable as traditional method of taxation i.e., in the hands of Investors as per the applicable slab rate of tax. [ Note :- As per earlier provisions, Upto the AY 2020-21 if Shareholders received dividend, then he was liable to pay tax u/s 115BBDA @10% in excess of Rs. 10 Lakhs dividend received, and upto Rs. 10 Lakhs dividend was exempt in hands of taxpayer u/s 10(34). However, Domestic company was required to pay tax U/s 115-O as Dividend Distribution Tax.] Section 115BBD :- Dividend Received by Indian Company from Foreign Company in which it has holding of 26% or more of equity share capital shall be taxable @15% in hands of Indian Company. (No other expenses is allowed against dividend). Deemed Dividend :- Section 2(22)(a) Any Distribution of Assets by a company to its shareholders to the extent the company possesses accumulated profit. Section 2(22)(b) (a) Any distribution to its shareholders by Company of its debentures, debentures stock or deposit certificates, and (b) Any distribution to its preference shareholders of shares by way of Bonus, (to the extent to which co. possesses accumulated profit.) Section 2(22)(c) Any Distribution of Assets by a company on liquidation to the extent to which co. possesses accumulated profit. Section 2(22)(d) Any distribution to its shareholders by Company on reduction of its capital to the extent to which co. possesses accumulated profit. Note :- 1. Accumulated Profit u/s 2(22)(a)/(b)/(c)/(d) whether Capitalised or not . 2. Applicable to all Companies. Section 2(22)(e) Any Loans or Advances given by Closely Held Company/Unlisted Company to any concern, to its shareholders or to any person is treated as deemed dividend to the extent to which co. possesses accumulated profit. Note :- 1. Any Concern (i.e. Company, HUF, AOP etc) means in which company has substantial interest 2. Loans or Advance to shareholders who has 10% or more voting rights in such Company. 3. Loans or Advance to Any Person means on behalf or for benefit of the shareholders, will be taxable in hands of Shareholders. Section 2(22)(f) [ w.e.f. 01.10.2024 inserted vide Finance (No. 2) Act, 2024 ] any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013 Applicable Tax Rates on Dividend Taxpayer Nature of Dividend Rate of Tax Resident Dividend received from Domestic Co. Slab Rate NRI Dividend on GDR of Indian Co./PSU (purchased in foreign currency) 10% NRI Dividend on Shares of Indian Co. (purchased in foreign currency) 20% NRI Any other Dividend Income 20% FPI Dividend on securities other than 115AB 20% Investment Division of Offshore Banking Unit Dividend on securities other than 115AB 10 Deduction to Companies in Respect of Certain Inter Corporate Dividend Section 80M :-If Gross total income of domestic company include dividend from another domestic company or foreign company or business trust then a) Aggregate dividend Income received (include deemed dividend) or dividend distributed to shareholders upto due date whichever is lower shall be allowed as deduction to the company. =============================== Rates of Dividend Tax Rates for the Financial Year 2018-19 to 2019-20 Section 115O Any addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax as per rates given below: 1. Deemed Dividend u/s 2(22)(e) = 30 2. Dividend Other than deemed dividend = 15% [17.647% after Reverse Calculation] Section 115QA Any amount of distributed income by the company on buy-back of shares ( not being shares listed on a recognised stock exchange [w.e.f. 05.07.2019 Omitted vide Finance (No.2) Act. 2019 ] from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate: 1. Distributed income of domestic company for buy-back of unlisted shares = 20% Notes: Note 1: - Add Surcharge - Surcharge is 12% of income-tax in case of domestic companies Note 2: - Add Health and Education Cess - 4% of Income Tax Note 3: - Dividend is exempt in the hands of shareholder u/s 10(34) Note 4 - The provision of section 115QA(1) shall not apply to such buy-back of shares (being the shares listed on a recognised stock exchange). [ Inserted vide Taxation Laws (Amendment) Act, 2019 w.e.f. 05-07-2019 ] Note 5 - The provision of section 115QA(1) shall not apply in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024. [ Inserted vide Finance (No. 2) Act, 2024 ] =============================== Rates of Dividend Tax Rates for the Financial Year 2017-18 Section 115O 1. Deemed Dividend u/s 2(22)(e) = NA 2. Dividend Other than deemed dividend = 15% [Reverse Calculation] Section 115QA 3. Distributed income of domestic company for buy-back of unlisted shares = 20% Notes: Note 1: - Add Surcharge - Surcharge is 12% of income-tax in case of domestic companies Note 2: - Add Education Cess - E. Cess is 2% of Income Tax plus surcharge Note 3: - Add Secondary and Higher Education Cess - SHE. Cess is 1% of Income Tax plus surcharge Note 4: - Dividend (other than dividend tax) is exempt in the hands of shareholder u/s 10(34) =============================== Rates of Dividend Tax Rates for the Financial Year 2015-16 FY 2016-17 Section 115O 1. Deemed Dividend u/s 2(22)(e) = NA 2. Dividend Other than deemed dividend = 15% [Reverse Calculation] Section 115QA 3. Distributed income of domestic company for buy-back of unlisted shares = 20% Section 115TA [upto 31-5-2016 only] 4. Distribution by securitization trust to investors - 25% if the recipient is individual / HUF and 30% if recipient is any other person Notes: Note 1: - Add Surcharge - Surcharge is 12% of income-tax in case of domestic companies Note 2: - Add Education Cess - E. Cess is 2% of Income Tax plus surcharge Note 3: - Add Secondary and Higher Education Cess - SHE. Cess is 1% of Income Tax plus surcharge Note 4: - Dividend (other than dividend tax) is exempt in the hands of shareholder u/s 10(34) =============================== Rates of Dividend Tax Rates for the Financial Year 2014 - 2015 Section 115O 1. Deemed Dividend u/s 2(22)(e) = NA 2. Dividend Other than deemed dividend = 15% [Reverse Calculation w.e.f. 1.10.2014] Section 115QA 3. Distributed income of domestic company for buy-back of unlisted shares = 20% Section 115TA 4. Distribution by securitization trust to investors - 25% if the recipient is individual / HUF and 30% if recipient is any other person Notes: Note 1: - Add Surcharge - Surcharge is 10% of income-tax in case of domestic companies Note 2: - Add Education Cess - E. Cess is 2% of Income Tax plus surcharge Note 3: - Add Secondary and Higher Education Cess - SHE. Cess is 1% of Income Tax plus surcharge Note 4: - Dividend (other than dividend tax) is exempt in the hands of shareholder u/s 10(34) =============================== Rates of Dividend Tax Rates for the Financial Year 2013 - 2014 Section 115O 1. Deemed Dividend u/s 2(22)(e) = NA 2. Dividend Other than deemed dividend = 15% Section 115QA 3. Distributed income of domestic company for buy-back of unlisted shares = 20% Section 115TA 4. Distribution by securitization trust to investors - 25% if the recipient is individual / HUF and 30% if recipient is any other person Notes: Note 1: - Add Surcharge - Surcharge is 10% of income-tax and in case of domestic companies Note 2: - Add Education Cess - E. Cess is 2% of Income Tax plus surcharge Note 3: - Add Secondary and Higher Education Cess - SHE. Cess is 1% of Income Tax plus surcharge Note 4: - Dividend (other than dividend tax) is exempt in the hands of shareholder u/s 10(34) =============================== Rates of Dividend Tax Rates for the Financial Year 2012 - 2013 Section 115O 1. Deemed Dividend u/s 2(22)(e) = NA 2. Dividend Other than deemed dividend = 15% Notes: Note 1: - Add Surcharge - Surcharge is 5% of income-tax in case of domestic companies Note 2: - Add Education Cess - E. Cess is 2% of Income Tax plus surcharge Note 3: - Add Secondary and Higher Education Cess - SHE. Cess is 1% of Income Tax plus surcharge Note 4: - Dividend (other than dividend tax) is exempt in the hands of shareholder u/s 10(34)