In simple terms, a dividend is the distribution of the profit of the company among its shareholders. The dividend income referred to in section 115-O of the Income Tax Act is exempt under section 10(34) of the Income Tax Act. The exemption provisions of said section 10(34) are taken up and explained in the present article.

Provisions of section 10(34) of the Income Tax Act

Section 10(34) simply states the following two things-

1. Dividend income referred in section 115-O is exempted under section 10(34); and

2. Provisions of section 10(34) doesn’t apply to dividend income chargeable to tax in terms of section 115BBDA. Meaning thereby that exemption under section 10(34) is not available towards the dividend income charged to tax under section 115BBDA.

Basic understanding of section 115O-

Provisions of section 115-O refer to any dividends distributed by the domestic (Indian) company (other than dividends covered under section 2(22)(e).

It is important to understand here that the domestic company were required to pay dividend distribution tax (in terms of section 115-O), and basically, to avoid double taxation, the exemption under section 10(34) is provided to all the dividend incomes on which dividend distribution tax is paid by the domestic company.

Further, it is also important to make a note that the dividend distribution tax is abolished vide the Finance Budget 2020. Thus, the domestic company would not be paying the dividend distribution tax, and accordingly, the dividend income will become taxable in the hands of the recipients.

Basic understanding of Section 115BBDA

Provisions of section 115BBDA get applicable only in case the aggregate dividend income (distributed or paid by the domestic company) exceeds INR 10 Lakhs. Section 115BBDA levies a tax at the rate of 10% on the dividend income exceeding INR 10 Lakhs.

Understanding the exemption available under section 10(34) with an example-

Suppose Mr. A has earned a dividend of INR 50,000 from an Indian company M/s. XYZ Ltd. The entire dividend so received, from the domestic company, is exempt in terms of section 10(34).

Suppose Mr. B has earned the following three dividends during Financial Year 2017-2018-

  • INR 5 Lakhs from an Indian company M/s. ABC Ltd.;
  • INR 4 Lakhs from another Indian company M/s. DEF Ltd; and
  • INR 3 Lakhs from another Indian company M/s. MNO Ltd.

The total dividend earned by Mr. B turns out to be INR 12 Lakhs. Now, out of the total dividend of INR 12 Lakhs, INR 10 Lakhs would be exempt, whereas, on the remaining 2 Lakhs tax is payable as per section 115BBDA.

Table – Articles on Section 10 Exemptions

Sr. No. Particulars
1 Section 10(1)– Exemption to Agricultural Income
2 Section 10(2) Exemption to amount received by co-parcener from HUF
3 Section 10(2A) Exemption towards share of income from firm/LLP
4 Exemptions towards interest to non-residents | Section 10(4) & 10(4B)
5 Exemption on Tax paid by Govt or Indian concern on certain income of a foreign company
6 Section 10(7) Perquisites/allowances exemption to Govt employees serving outside India
7 Exemption- Section 10(8A) & section 10(8B) of Income Tax Act
8 Exemption towards commuted value of pension Section 10(10A)
9 Exemption towards retrenchment compensation received by workman Section 10(10B)
10 Section 10(10BC) Exemption towards compensation received on account of any disaster
11 Section 10(10C) Exemption of amount received on voluntary retirement
12 Exemption towards tax paid by employer on non-monetary perquisites: Section 10(10CC)
13 Section 10(10D) Exemption towards amount received under a Life Insurance Policy
14 Exemption for amount received from Statutory & Recognized PF
15 Exemption for payment from approved superannuation fund Section 10(13)
16 Income Tax Exemption on prescribed allowances/ benefits | Section 10(14)
17 Section 10(15) Exemption- Interest on Bonds, Debentures, Securities
18 Scholarship exemption | Section 10(16) | Income Tax Act 1961
19 Exemption towards income for administration of Charitable or Religious Institution
20 Section 10(32) Exemption | Income of minor clubbed with parent
21 Exemption for dividend income received from Indian Company | Section 10(34)
22 Section 10(34A) Exemption towards income received by a shareholder on buy back of shares
23 Section 10(35) Exemption towards income received from units
24 Section 10(37) Exemption towards Capital Gain arising on Compulsory Acquisition of Urban Agricultural Land

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2 Comments

  1. S Govindaswamy says:

    Is the dividend received from Mutual funds also covered under the exempted amount of Rs 10 Lakhs under Sec 10(34).

  2. ahmad says:

    What would be the tax treatment of Dividend Income received by an Investment Comapny from an Indian Company? Please reply?

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