CA Vinay Lunkad S

Vinay Lunkad SEffective Collection of Taxes for a company @ 53.67% !!

W.e.f AY 2017-18 Exempted Dividends received by an Resident Individual, HUF in excess of 10 Lakhs from an Domestic Company will now be further taxed @ rate of 10% + Applicable Surcharge & Cess on the Gross Dividend receivedu/s115-BBDA, earlier any dividend received was exempted as the dividends have already suffered Dividend Distribution Tax (DDT) @ 15%+ Applicable Surcharge & Cess. The impact of the above amendment is explained in the below two illustrations

Illustration 1:-

ICCT20 Pvt Ltd earned Rs. 150 crores (PBT) and comprises of 2 Shareholders having 50% share Each, the impact of the above amendment is as follows:-

Particuars Amount Rate of Tax Remarks
PBT     150.00  
Less:Tax       51.91             34.61{30+12% Surcharge+3% Cess}*150
PAT       98.09  
DDT       16.97             17.30{15+12% Surcharge+3% Cess}*98.09
Tax Paid by Shareholders       11.62             11.85{10+15% Surcharge+3% Cess}*98.09
Total Tax Collected       80.50   {51.91+16.97+11.62}
In Terms of % to PBT53.67% {80/150}

Illustration 2:-The dividend received will be taxed on Gross Basis

MSD received Rs. 25 Lacs as exempted dividend and have incurred expenses to the tune of Rs.1.5 Lacs and had a b/f unabsorbed depreciation loss of 15 Lacs , then tax will be computed as follows:-

A) Dividend Received – 25 Lacs (Net)

B) Add: DDT Paid on above – 6.33 Lacs ( 25 *17.304/(100-17.304)

C) Gross Dividend – 31.33 Lacs

D) Tax @ 10 % on Gross Dividend – 3.133 Lacs + Applicable Surcharge and Cess

Note: As per S-115BBDA (2), in respect of dividends received taxed u/s 115BBDA(1) no deduction will be allowed for any set off loss or expenditure or allowance.

Takeaways:-

  • Additional Tax on exempted dividend earned in excess of 10 lacs @ 10%
  • Dividends taxable on Gross Basis and not on the actual dividend received
  • No expenditure or losses or any allowance can be claimed against such dividend
  • Applicable to only Resident Individuals / HUF/Firms
  • Dividend received should have suffered DDT
  • Dividend should be declared by a Domestic Company
  • For computing 10 Lakhs received divided received from all the companies is to be considered
  • Clarity is expected on the grossing up of dividends as for an individual identifying the rate of DDT will be a cumbersome process.

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Category : Income Tax (20861)
Type : Articles (10799) Featured (3626)
Tags : Budget 2016 (434) tax rates (54)
  • sharad mohan

    Let’s not forget CSR provision @2% post tax. which is effectively a tax.