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.
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.
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.
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.
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-
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
|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|