23. Relief in respect of tax on distributed profits of domestic companies

23.1 Provisions of sub-section (1) of section 115-O provide for levy of tax on distributed profits of a domestic company at the rate of fifteen per cent in addition to the income tax payable on its taxable profits. Where a parent company receives dividend from its subsidiary company, there is a cascading effect of the dividend distribution tax when the parent company also distributes dividend. Relief from this cascading effect of dividend distribution tax between a parent and its subsidiary company upto one level has now been provided for the purpose of which a new sub24 section (1A) has been inserted in section 115. Relief in respect of dividend received by a domestic company is available subject to following conditions –

(a) Such dividend is received from its subsidiary.
(b) The subsidiary has paid tax under this section on such dividend.
(c) The domestic company is not a subsidiary of any other company.

23.2 Relief is provided by allowing the parent company to reduce the amount of dividend received during the financial year from its subsidiary while calculating its liability towards dividend distribution tax under sub-section (1). The relief out of the amount mentioned in sub-section (1) is subject to the condition that the same amount of dividend shall not be considered for reduction more than once.

23.3 Applicability: This amendment has been made applicable with effect from 1st April, 2008 and shall accordingly apply with respect to dividend distributed on or after this date.

Extract from Explanatory Notes to The Provisions of the Finance Act, 2008 vide circular no. 1/ 2009, dated 27th Mar, 2009.

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