Dividend Taxability provisions of Income Tax Act with effect from 01st April 2020.
Recently, there have been number of changes in the taxation provisions of dividend.
Following are the provisions of Tax rates that are applicable to residents and non residents with effect from 1st April 2020, the situation in which dividend would be taxable and the expense that would be allowed as deduction from the income.
1. Dividend is taxable @ 20% in the hands of Non Resident (not being a company)/ Foreign company
2. Dividend received by Indian Company from the foreign company in which such company holds minimum 26% of nominal equity share capital of the foreign company shall be taxable @ 15%
3. Dividend paid by Indian Company outside India shall be taxable in India.
i. In this clause of Section 9, Dividend paid by Indian companies only are taxable in the hands of receiver. If the dividend has been paid by the company having POEM in India as per Section 6 of Income Tax Act, but such company is not Indian Company, then the dividend paid by such company outside India shall not be taxable.
ii. Similarly, dividend paid by assessee having business connection in India and such assessee is not an Indian Company, the dividend paid by such company having business connection in India shall not be taxable in India.
4. Deduction upto 20% of the income can be availed from Dividend income on account of Interest Expense u/s 57 of Income Tax Act. But, the assessee would have to prove that such amount of loan was taken for the purpose of investment in the shares of the company.
5. No other Expense is allowed as deduction from the Dividend Income other than Interest Expense.
6. Deduction to Domestic Company is available to the extent dividend received as restricted to dividend distributed by the company received from any other domestic company, foreign company or business trust upto the specified date i.e one month prior to due date of income tax return for the previous year.
7. TDS on dividend @10% u/s 194 and 194K for amount exceeding INR 5000 in a year
8. Tax shall be paid by the resident assessee on the dividend income as per normal slab rates.
For the Non Residents and Foreign Company, Income Tax Act or DTAA of residing country of such assessee, whichever is beneficial would apply to the assessee.