CA Vinay Lunkad S
Effective 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 PBT | 53.67% | {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.
Author Bio
Let’s not forget CSR provision @2% post tax. which is effectively a tax.