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section-10-34-income-tax-exemption-on-dividend-income

 

Section 10 (34): Income Tax Exemption on Dividend Income

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Dividend received from an Indian company under section 10 (34) is exempt from tax provided the dividend distribution tax has already charged under section 115-O.
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).

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 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 1-
Mr. X received a dividend amounting to Rs. 18,00,000 during the year from Indian companies. What will be tax liability?
Answer-
Mr. X Received dividend of Rs. 18,00,000 Exempted up to Rs. 10,00,000 Taxable Amount Rs. 8,00,000 Tax Amount Rs. 80,000 (i.e. 10% of Rs. 8,00,000)

Why the Dividend Income Exempt?
To receive taxation on dividend at one stage, introduce Section 115-O, which make it exempt in hands of recipient. The domestic company has to pay Dividend Distribution Tax on dividend amount either on declaration or distribution or payment, whichever is earlier. So, the dividend is tax free in the hands of the shareholder if received from Indian company.
Example- M/s XYZ company declare dividend of Rs. 1,00,000 during the year. The company has to pay tax on amount of dividend. It will be tax free in the hands of shareholder.
 
Dividend received from Foreign Company
Dividend received from Foreign Company is taxable. It comes under the head of “Income from Other Sources” and taxable @ 20% + Ed. Cess etc. the amount paid as commission or remuneration to a banker or any other person for the purpose of realizing such dividend on behalf of the assessee shall be allowed as a deduction. Then this commission paid will be allowed as a deduction (u/s 57) from your dividend income taxable under the head income from other sources.
Under Section 115BBD, dividend received by domestic company will be charged at a concessional rate of tax @ 15% + Surcharge + Ed. Cess etc., provided the domestic company holds 26% of the normal equity capital of the said foreign company. There is no deduction in respect of expenses will be allowed, the tax will be charged on gross dividend income.
 
Relief from double taxation in case of foreign dividends-received from a foreign company is charged to tax in India as well as in the country to which the foreign company belongs. If the foreign dividend has suffered double taxation, then the taxpayer can claim double taxation relief either as per the provisions of Double Taxation Avoidance Agreement (if any) entered into with that country by the Government of India or can claim relief as per Section 91 (if no such agreement exists).  Basically, it means that you won’t have to pay tax on the same income twice.



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