Dividend is said to be the return or reward or profit sharing (i.e. distribution of profit) to shareholders on their investment in the company. In the Income Tax Act, Company is liable to pay tax while distributing its profits to the shareholder and such profits are exempt in the hand of shareholder. Any amount declared, distributed or paid by any domestic company by way of dividend is charged to additional income-tax, i.e., dividend distribution tax (herein after referred as DDT) under section 115O. And if income is distributed by mutual fund, it is chargeable to DDT under section 115R. This charge is over and above the corporate tax paid by such companies. Dividend which is subject to DDT is exempt in the hand of recipient subject section 115BBDA. Following is the chart depicting the taxability of dividend in the hand of distributor and recipient.
|Source of Dividend||Taxation for distributor||Taxation for Resident Recipient|
|DTT||Income tax section||Tax for Individual/HUF/Firm||Company||Income tax section|
|Dividend from Domestic Company|
|If aggregate dividend income received during the year is up to 10 lakhs||15%/30%*||Section 115-O||Nil||Nil||Section 10(34)|
|If aggregate dividend income received during the year is more than 10 lakhs||15%/30%*||Section 115-O||10%||Nil||Section 115BBDA***|
|Tax on distributed income by the company on buy-back of shares||20%||Section 115-QA||Nil||Nil||Section 10(34A)|
|Dividend from Foreign Company||Nil||NA||Slab Rate||Applicable rate /15%**||Section 115BBD***|
|income distributed to any person by an equity-oriented fund||10%||Section 115-R||Nil||Nil||Section 10(35)|
|income distributed a money market mutual fund or a liquid fund/ other fund|
|if Unit Holder is Individual/ HUF||25%||Section 115-R||Nil||Nil||Section 10(35)|
|if Unit Holder is any other person||30%||Section 115-R||Nil||Nil||Section 10(35)|
|income distributed to Non-Resident under as Infra debt fund scheme||5%||Section 115-R||NA||NA||NA|
*DDT @ 30% is applicable in respect of dividend referred to in sub-clause (e) of clause (22) of section 2 (w.e.f. 1st April 2018).
**15% is applicable if distributed by “specified foreign company” means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company.
***These sections are not applicable in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, so such dividend is not taxable in the hand of recipient if received from domestic company and taxable at applicable in the hand of recipient in case received from foreign company.
1. As per section 115O (1A), for calculation of amount subject to DDT, following shall be reduced:
a. Amount of dividend received from subsidiary and such subsidiary has paid the tax which is payable under this section on such dividend or if such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend.
b.The amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10.
2. DDT is applied on grossed up amount of dividend except on dividend referred to in sub-clause (e) of clause (22) of section 2. Like grossed up rate for dividend payable @ 15% would be 17.65% (100/85-100). This will be further increased by surcharge @ 12% and HEC @ 4%.
3. DDT is payable on distribution of dividend even if no income tax payable by such company under normal provision of the income tax act.
4. DDT is payable within 14 days of earliest of dividend declared or distributed or paid.
5. DDT paid by company shall be treated as final payment of tax on such dividend and further no credit of tax shall be claimed.
6. No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to DDT u/s 115O.
7. Dividend referred in section 115O distributed by unit located in IFSC, deriving income solely in convertible foreign exchange, out of income accumulated on or after 1st April 2017 is not chargeable tax either in the hands of the company or the person receiving such dividend.
8. Dividend referred in section 115R distributed by mutual located in IFSC, deriving income solely in convertible foreign exchange, on or after 1st Sep 2019 is not chargeable to tax either in the hands of the company or the person receiving such dividend.
9. Section 115R is applicable only on distribution of income by way of dividend. It is not applicable on payments pertaining to redemption/ repurchase of units or allotment of additional units by way of bonus units- circular No. 6/2014-Income Tax, dated 11th Feb 2014
10. As per section 115A, if recipient of divided is Non-resident, it is taxable @ 20% in respect of dividends other than dividends referred to in section 115-O.
11. Any other divided not referred in above chart is taxable in the hands of recipient u/s 56 of the income tax act as income from other sources and taxable as per rate of tax applicable to the assessee.