Taxability of Dividend distributed by Companies
DDT u/s 115O (1), Tax on distributed Income u/s 115R,
In the hand of Domestic Company U/s, 115 O: Under the existing tax regime Domestic Companies are liable to pay tax at the rate 15% on gross amount of dividend plus 12% surcharge and 4%cess on the amount of dividend declared or distributed or paid. Therefore, the effective rate of DDT is 17.65%* on the amount of dividends.
In the case of dividend referred to in Section 2 (22) (e) of the Income Tax Act, it has been increased from 15% to 30%.
In the hand of Mutual Fund U/s 115R: Any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at 20%/30%.
In the Hand of Shareholder: U/s 10(34)
Where aggregate dividend received by an individual/HUF from companies exceeds Rs. 10,00,000, it is liable to pay tax at the rate of 10% on dividend income received in excess of Rs. 10 lakhs.
In the hand of Unit Holder U/s 10(35)
The amount received by Unitholder as a dividend shall be exempt.
New Provision as per amendment as per budget 2020
In the hand of the company:
Domestic companies are not liable to pay DDT u/s 115(O)
In the hand of Mutual Fund
Now Mutual fund is not liable to pay DDT u/s 115R
In the hand of Shareholders
Now only shareholders are liable to pay tax on dividend received irrespective of any limit of amount.
In the hand of Unitholders:
Now mutual fund unitholders are liable to pay tax at the applicable tax rate.
- Amend section 115BBDA which taxes dividend income in excess of ten lakh rupee in the hands of the shareholder at ten per cent., to the only dividend declared, distributed or paid by a domestic company on or before the 31st day of March 2020. Now tax liability shall arise at a single hand (i.e. Shareholder).
- Amend section 194 to include dividend for a tax deduction. At the same time the rates of ten percent. is proposed to be prescribed and the threshold is proposed to be increased from Rs 2,500/- to Rs 5,000/- for the dividend paid other than cash. Further, at present, the mode of payment is given as “an account payee cheque or warrant”. It is proposed to change this to any mode.
- Amend clause (23FC) of section 10 so that all dividends received or receivable by the business trust from a special purpose vehicle is exempt income under this clause.
- Amend clause (23FD) of section 10 to exclude dividend income received by a unitholder from the business trust from the exemption so that the dividend income is taxable in the hand of unitholder of the business trust.
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