TAXATION ON DIVIDEND INCOME (Dividend income is taxable or not)
INCOME OF DIVIDEND-:
- Dividend received from Domestic company shall be exempt from tax in hands of recipient u/s 10(34). The logic behind the exemption is, domestic company has paid tax on such dividend called as Dividend Distribution Tax (DDT) u/s 115-O.
- Whereas dividend received from foreign company shall be taxable in hands of recipient at normal tax rate. Here the logic behind the taxation, is Dividend Distribution Tax is not applicable in case of foreign company.
Sec. 115BBD-: TAXATION IF DIVIDEND RECEIVED TO INDIAN COMPANY FROM FOREIGN COMAPNY.
If any Indian company which has 26% or more equity shares in foreign company and received dividend from such foreign company then such dividend is taxable in hands of Indian company at the rate 15% plus surcharge and cess if applicable. In respect of such dividend no expenditure shall be allowed to Indian company.
Sec.115BBDA-: TAXATION ON DIVIDEND WHEN IT EXCEEDS Rs.10 LAC (Dividend income is taxable or not)
When any resident assessee received dividend from domestic company in aggregate more than Rs. 10 lac then recipient is required to pay tax as per Sec 115 BBDA at 10% on dividend in excess of 10 lac.
In respect of above dividend income i.e. dividend in excess of 10 lac, no expenditure is allowed against such dividend which is taxable under this section.
However company has also paid Dividend Distribution Tax on such dividend which is getting taxed under this section in hands of resident assessee.
Sec.115BBDA shall not be applicable on-: w.e.f 01.04.2018
- Domestic Company
- A fund or trust or institution or any university or other educational institution or any hospital referred u/s 10(23C)
- A trust or institution registered u/s 12A or 12AA.
Example-: If Mr. Singh received dividend from Reliance Communication Rs. 12,00,000/-in the year in such case dividend income of Rs. 10,00,000/- is exempt in hands of Mr. Singh u/s 10(34) and excess of Rs. 10,00,000/- i.e. Rs. 2,00,000/- shall be taxable at a rate 10%. Therefore tax payable by Mr. Singh on dividend of Rs.2,00,000 would be 20,600/-(10% of 2,00,000 plus Cess )
In above example Reliance Communication Will have to pay DDT on Rs. 12,00,000/- (After grossing up) however in hands of shareholder only Rs. 2,00,000/- shall be taxable u/s 115BBDA.
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