BEFORE AY 2021-22

♦ Dividend is taxable in the hands of distributor (i.e. Assessee distributing dividend) @ 15% + Surcharge applicable + Education Cess @ 4% in form of CDT/DDT

♦ Assessee receiving dividend gets Exemption up to Rs. 10 Lakhs of dividend income, above Rs.10 lakhs, taxable @ 10% on excess amount

The word dividend laid by volumetric silver metal letters

FROM AY 2021-22 / FY 2020-21

♦ Dividend is exempt in hands of distributor (i.e. Assessee distributing dividend), but liable to deduct TDS @ 10% if amount of Dividend exceeds Rs. 5000/- on whole dividend amount.

♦ Taxable in hands of receiver assesse @ normal slab rates, no deduction available (earlier available of Rs. 10 lakhs).

♦ If surcharge is applicable on taxable Income of assessee as per specified limits, maximum surcharge applicable on Tax on Dividend Income is up to 15% of Tax Amount. (i.e. if your income is in slab limit of surcharge of 25%, tax on dividend income will be having capping on surcharge on tax @ 15% on tax amount proportionate to total tax with income.

Note: – Dividend includes Deemed dividend u/s 2(22) (a)/ (b)/ (c)/ (d)/ (e)

ALLOWANCE OF EXPENSE ON DIVIDEND INCOME (AS PER PROVISO TO SECTION 57)

♦ Interest paid on Borrowed funds for earning such dividend is allowed as claimable expense with maximum limit of 20% of Gross Dividend Income. No other expense is allowed

DEDUCTION U/S 80M (IF ASSESSEE IS DISTRIBUTING THE DIVIDEND INCOME EARNED DURING THE PREVIOUS YEAR WITHIN THE PREVIOUS YEAR)

♦ Applicable where domestic company received dividend from another domestic company, Foreign Company, Business Trust

♦ Deduction available equal to amount of income distributed as dividend (maximum to amount of income earned during the year)

TIME PERIOD AVAILABLE TO CLAIM SUCH BENEFIT

♦ One month prior to due date to file return u/s 139(1) of Previous Year shall be allowed

SECTION 115BBD – DIVIDEND RECEIVED FROM SPECIFIED FOREIGN COMPANIES (EMPOWERING SECTION)

  • Specified Foreign Company means Subsidiary Company
  • No expense under proviso to section 57 is allowed
  • Deduction u/s 80M is available as its not any expenditure, nor any allowance.
  • Taxable @ 15% + Surcharge Applicable + Education Cess @ 4% (Flat Rate)
  • Conditions to avail benefit of Section 115BBD
  • Available only to Indian Company
  • Must hold at least 26% equity in nominal value in Foreign Company
  • Dividend u/s 2(22) (e) is not covered under ambit of this section

Example

S. No. Particulars Dividend Amount Collection Expense Interest on Borrowed Capital
1 A Ltd. ( Domestic Company ) 100 Lakhs 5 Lakhs 30 lakhs
2 B Ltd. ( Mutual Fund ) 200 Lakhs 4 Lakhs 37 Lakhs
3 C Inc. ( Foreign Company – Holding 10% Voting Power in such Company) 150 Lakhs 20 Lakhs 35 Lakhs
4 D Inc. ( Foreign Company – Holding 45% Voting Power in such company) 250 Lakhs 3 Lakhs 15 Lakhs

 

Honeywell Limited distributes dividend to shareholders amounted Rs. 450 lakhs.

Compute Taxable amount of Net Dividend Income

Solution:
S. No. Particulars Normal Dividend Dividend u/s 115BBD Total
1 A Ltd. ( Domestic Company ) 100 Lakhs 100 Lakhs
2 B Ltd. ( Mutual Fund ) 200 Lakhs 200 Lakhs
3 C Inc. ( Foreign Company – Holding 10% Voting Power in such Company) 150 Lakhs 150 Lakhs
4 D Inc. ( Foreign Company – Holding 45% Voting Power in such company) 250 Lakhs 250 Lakhs
Gross Income 450 Lakhs 250 Lakhs 700 Lakhs
Less: Interest Expense Allowed

– 20% of Gross Income

– Amount Paid

Whichever is lower

 

90 Lakhs

102 Lakhs

90 Lakhs allowed as deduction

 

50 Lakhs

15 Lakhs

N/A as no benefit of expense available u/s 115BBD

90 Lakhs
Income Before Deduction u/ 80M 360 Lakhs 250 Lakhs 610 Lakhs
Less: Deduction u/s 80 M 360 lakhs 190 Lakhs 550 Lakhs
Net Taxable Income NIL 60 Lakhs 60 lakhs
Applicable Tax Rate N/A @ 15% @ 15%
Note: – Normal Dividend is taxable @ 30%/25%/22% (plus Surcharge & Cess) as per the case applicable but Section 115BBD has flat applicable rate of 15% (Plus surcharge & Cess), thus its beneficial to adjust 80M from normal dividend first completely and then adjustment u/s 115BBD to be carried out.

Author Bio

Qualification: CA in Job / Business
Company: G. S. Kohli & Company
Location: New Delhi, Delhi, India
Member Since: 12 Sep 2021 | Total Posts: 2

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2 Comments

    1. Vishal Aggarwal says:

      No, from FY 2020-21 onwards dividend income is taxable as normal income under head of Income from other sources at normal slab rates and this rule is same for all assessee

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