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
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 |
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| 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
Isn’t dividend tax double taxation? Isn’t the company paying tax before sharing profit? Then why again shall the shareholders pay the tax?
Is Dividend Income exempted from total taxable income of a Super Senior Citizen for FY 2020-2021
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