Exemption of deduction of tax at source on payment of Dividend to business trust in whose hand dividend is exempt

Section 194 of the Act provides for deduction of tax at source (TDS) on payment of dividends to a resident. The second proviso to this section provides that the provisions of this section shall not apply to such income credited or paid to certain insurance companies or insurers. It is proposed to amend second proviso to section 194 of the Act to further provide that the provisions of this section shall also not apply to such income credited or paid to a business trust by a special purpose vehicle or payment of dividend to any other person as may be notified.

This amendment will take effect retrospectively from 1st April, 2020.

[Clause 44]

Text of the Relevant Clause of the Finance Bill 2021

Clause 44 of the Bill seeks to amend section 194 of the Income-tax Act relating to dividends.

The said section provides for deduction of tax at source on payment of dividends by an Indian company including dividends on preference shares within India. The second proviso to the said section provides that the provisions of that section shall not apply to such income credited or paid to certain insurance companies or insurers.

It is proposed to amend the second proviso to the said section to provide that the provisions of that section shall not apply to such income credited or paid to a business trust as defined in clause (13A) of section 2 by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10 or any other person as may be notified by the Central government in this behalf.

This amendment will take effect retrospectively from 1st April, 2020.

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