1. Dividend is ordinarily used to refer to any distribution made by a company to its shareholders out of its profits in proportion to the number of shares held by the shareholder concerned in the company.
2. Section 115-O (1): Tax on distributed profits of Domestic company
Any amount declared, distributed or paid by way of dividends (Whether interim or otherwise), whether out of current of accumulated profits shall be charged to additional income tax @15% (plus surcharge @12% and education cess @3%).
Dividend distribution tax (CDT) is to be grossed up and this tax rate works out to be 20.9248%.
CDT is payable even if no income tax income tax is paid by the company.
CDT shall be paid within 14 days from the date of –
- a)declaration; or
- b) distribution; or
- c) payment, of any dividend whichever is earliest.
Foreign company is not liable to pay CDT.
3. Section 115BBDA: Tax on certain dividends received from domestic company
This section shall apply to dividend received from domestic company by all assessee except:
- a) Domestic company
- b) Institution referred to in section 10(23C)
- c) Religious and Charitable Trust registered under section 12AA
- d) Non-Residents and Foreign companies.
This section shall apply where the total dividends received by the assessee from all companies taken together, exceeds Rs. 10 lakhs during the previous year.
The amount of dividend in excess of Rs. 10 lakhs shall be taxed @ 10% (plus surcharge, if any and cess).
It may be noted that company shall also pay CDT under section 115-O on the dividend which is getting taxed under section 115BBD in the hands of shareholders.
Example: Mr. X invested in shares and received dividends during the year at various dates as under:
| Date of receipt | Script | Nature of Dividend | Amount of Dividend |
|---|---|---|---|
| 27-06-2017 | Gail | Final | 1,75,000 |
| 25-08-2017 | Infosys | Interim | 82,000 |
| 12-09-2017 | BHEL | Final | 2,34,000 |
| 15-09-2017 | Reliance | Final | 98,000 |
| 27-11-2017 | NTPC | Final | 2,73,000 |
| 02-02-2018 | TCS | Interim | 1,69,000 |
| 1.Total Dividend received | 10,31,000 | ||
| 2.Exempt u/s 10(34) | 10,00,000 | ||
| 3.Dividend taxable u/s 115BBDA (1)-(2) | 31,000 | ||
| 4.Tax on dividend @ 10% | 3,100 |
4. Section 10(34): Dividend income exempt from tax
Dividend received from domestic company is exempt in the hands of the shareholders provided such dividend has already suffered dividend distribution tax under section 115-O.
However, exemption under section 10(34) is not available for dividend taxable under section 115BBDA i.e. if dividend exceeds Rs. 10 lakhs.
5. Section 10(35): Mutual funds dividend income exempt from tax
Dividends received from mutual funds are fully exempt without any maximum limit.
6. Section 115BBD: Tax on dividends received from Foreign companies
Benefit of section 115BBD is available only to the Indian company.
Income tax shall be calculated at the rate of 15% on the income by way of dividends.
7. Analysis:
| Source of Dividend | Tax for Individual/HUF | Income tax section |
|---|---|---|
| Domestic Company | ||
| -If aggregate dividend income received during the year is less than 10 lakhs | Nil | Section 10(34) |
| – If aggregate dividend income received during the year is more than 10 lakhs | 10% | Section 15BBDA |
| Foreign Company | Slab Rate | Section 115BBD |
| Mutual Fund | Nil | Section 10(35) |