Key Changes :

Finance Bill, 2020 proposed to abolished dividend distribution tax (DDT) (Sec 115-O)/ Tax on distributed Income (Sec 115R) w.e.f 01.04.2020.

-Hence, dividend declared, distributed or paid by company or mutual fund on or after 01.04.2020 will be taxed in hand of shareholder-assesse u/s 56 (IFOS) and consequently dividend no longer exempt u/s 10(34)/ 10(35).

-Further, it is proposed that assesse can claim deduction of interest expenses u/s 57 (IFOS) on borrowed capital for the purpose of acquisition of securities, against dividend income up to 20% of dividend income.

-Further, Sec 115BBDA where dividend in excess of Rs 10 Lacs taxable in hand of resident – non corporate assesse is no longer taxed in line with proposed abolition of DDT.

Litigation:

  • As dividend become proposed to be taxable, litigation u/s 14A (Expenses incurred in relation to exempt income)  now will be reduced. However, deduction of interest as proposed u/s 57 may lead to kind of litigation as was there u/s 14A.

 Dividend from Foreign company:

  • Sec 115BBD, whereby dividend received by Indian company from foreign company in which former hold 26% or more in nominal value of share capital of later, will continue to be taxed in hand of Indian company at rate of 15% on gross basis and no deduction or allowance available  against such dividend income.

Participation Exemption:

  • Further, in order to avoid cascading effect of taxes, in hand of domestic company, it is proposed to insert Sec 80M where GTI of domestic company includes dividend income received from another domestic company, there shall be allowed a deduction of amount of dividend distributed, declared or paid by it on or before one month prior to date of filing return.  Illustrative table as follow,

Table

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