Dividend Distribution Tax under Section 115-O
The Dividend received on shares of a domestic company is exempted from tax up to Rs. 10,00,000 provided the dividend distribution tax is paid by the Indian companies. It is not payable in case of foreign companies.The domestic companies has to pay Dividend Distribution Tax on amount of dividend declared to shareholders as per section 115-O. the dividend is taxed in the hands of the company @15% + Surcharge 12% +Ed. Cess 3% (called Dividend Distribution Tax) it comes to charge @ 20.36% of dividend amount.
The Finance Bill 2018 has proposed to levy the Dividend Distribution Tax (DDT) on ‘Deemed Dividend’ under section 115-O of the Income Tax Act, 1961 at the rate of 30% (plus applicable surcharge and cess) in the hands of the closely held companies to prevent hiding dividend in the form of loans/advances.
The amendment shall apply to the transactions undertaken on or after 1st April, 2018.
The domestic company is liable to pay distribution tax within 14 days from the date of either on-
- Declaration of Dividend or
- Distribution of Dividend or
Whichever is earlier.
However, as per section 115BBDA of the Income Tax Act, w.e.f. 01.04.2017 when the shareholders received dividend in aggregate of more than Rs. 10,00,000 during the year from domestic companies, then such shareholder have also to pay Income Tax.
In case of Resident Individual/HUF/Firm, the dividend shall be chargeable to tax @ 10%, if the aggregate amount of dividend received from domestic company during the year exceeds Rs. 10,00,000 (Section 115BBDA). There is no deduction in respect of expenses will be allowed, the tax will be charged on gross dividend income.
Example-
M/s XYZ company declare dividend of Rs. 1,00,000 during the year. What will the dividend distribution tax for the company?
Answer-
First Gross the value of Dividend = 1,00,000 x 0.85% comes to Rs. = 1,17,647/-
Tax amount comes to Rs. 1,17,647 - 1,00,000 = 17,647
Surcharge @ 12% of Rs. 17,647 =2,118
Ed. Cess @ 3% of (17,647+2,118) = 593
Total Dividend distribution tax paid by company = 17647+2118+593 = 20,358/-
Or (Says 20.36% of Rs. 1,00,000/-)
Section 115-O (1A) as amended by Finance Act -Deduction allowed from dividend for the purpose of computation of tax-
The amount of dividend shall be reduced by-
- The amount of dividend, if any received by the domestic company during the financial year, if such dividend is received from its subsidiary and
- Where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend or
- Where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend.
Provided that the same amount of dividend shall not be taken into account for reduction more than once.
- Dividend paid to New Pension System (NPS) trust is not liable to Dividend Distribution Tax.
Example-
NPS trust invest in shares of M/s XYZ Pvt. Ltd. and M/s XYZ Pvt. Ltd. declares a dividend of Rs. 60 crores out of which Rs. 4 crores is payable to NPS trust. What will be the amount for payment of dividend distribution tax ?
Answer-
M/s XYZ Pvt. Ltd. will pay dividend distribution tax on Rs. 56 crores (i.e. Rs. 60 crore - Rs. 4 crore paid to NPS trust)
Default is made in paying dividend tax?
Where the principal officer of a domestic company and the company fails to pay tax on distributed profits, within the time allowed, he or it shall be liable to pay simple interest at the rate of 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. Moreover, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable.
Penalty and Prosecution -
If a person fails to comply with Section 115 O, he shall be liable to pay as penalty a sum equal to the amount of tax which he has failed to pay u/s 271C. He shall also be punishable with rigorous imprisonment for a term not less than 3 months but up to 7 years and fine. The punishment shall be dropped, under reasonable causes.