Dividend Distribution Tax

DIVIDEND DISTRIBUTION TAX

(Also refer bare IT Act for accuracy and updated information)

TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES [Definition - Section 2(22A) of the Income Tax Act 1961 -“Domestic Company” means an Indian Company, or any other Company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income.]

115-O. ¹[(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of ²[fifteen] per cent.]

 {Base Rate 15% + Surcharge  5% + Education Cess 2% + SHEC 1% = Total 16.2225%}

³[(1A) The amount referred to in sub-section (1) shall be reduced by,—

(i)  the amount of dividend, if any, received by the domestic company during the financial year, if—

(a)  such dividend is received from its subsidiary; ^3a[and]

(b)  the subsidiary has ^3b[paid the tax which is payable under this section on such dividend:]

(c)  ^3c[***]

Provided that the same amount of dividend shall not be taken into account for reduction more than once;

(ii)  the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10.

Explanation.—For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.]

(2) Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on distributed profits under sub-section (1) shall be payable by such company.

(3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of—

(a)  declaration of any dividend; or

(b)  distribution of any dividend; or

(c)  payment of any dividend,

whichever is earliest.

(4) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid.

(5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon.

⁴[(6) Notwithstanding anything contained in this section, no tax on distributed profits shall be chargeable in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2005 out of its current income either in the hands of the Developer or enterprise or the person receiving such dividend ⁵[***]] :

⁶[Provided that the provisions of this sub-section shall cease to have effect from the 1st day of June, 2011.]

1.    Substituted by the Finance Act, 2003, w.e.f. 1-4-2003. Earlier sub-section (1) was amended by the Finance Act, 2000, w.e.f. 1-6-2000, Finance Act, 2001, w.e.f. 1-6-2001 and Finance Act, 2002, w.e.f. 1-4-2003.

2.    Substituted for "twelve and one-half" by the Finance Act, 2007, w.e.f. 1-4-2007.

3.    Substituted by the Finance (No. 2) Act, 2009, w.r.e.f. 1-4-2009. Earlier sub-section (1A), was inserted by the Finance Act, 2008, w.e.f. 1-4-2008.

     3a. Inserted by the Finance Act, 2012, w.e.f. 1-7-2012.

3b. Substituted for "paid tax under this section on such dividend; and" by the Finance Act, 2012, w.e.f. 1-7-2012.

       3c.Omitted by the Finance Act, 2012, w.e.f. 1-7-2012. Prior to its omission, clause (c) read as: "(c) the domestic company is not a subsidiary of any other company :"

4.    Inserted by the Special Economic Zones Act, 2005, w.e.f. 10-2-2006.

5.    Words "not falling under clause (23G) of section 10" omitted by the Finance Act, 2006, w.e.f. 1-4-2007.

6.    Inserted by the Finance Act, 2011, w.e.f. 1-6-2011.