The dividend distribution tax has been abolished from 1 April 2020. Dividend to be taxed in the hands of shareholders at the rates applicable as per Income Tax Act, 1961 (the Act), or as per tax treaty or Act whichever is more beneficial (incase of NR shareholders). However, dividends received by a shareholder on or after 1st April 2020, on which DDT has been paid before 1st April 2020, is exempt in the hands of a shareholder to remove double taxation.
Taxability of dividends in the hands of shareholders:
|
Status of recipient/shareholder |
Rate of tax |
Relevant section |
|
Resident companies Under old tax regime Under new tax regime |
34.94% / 29.12% 25.17% / 17.16% |
Part I of first schedule to FA, 2020 Section 115BAA / Section 115BAB |
|
Resident individual and HUF |
Upto 42.74% |
Part I of first schedule to FA, 2020 |
|
LLPs |
34.94% |
Part I of first schedule to FA, 2020 |
|
Non-resident assesses including foreign companies |
21.84% or rate as per tax treaty, whichever is more beneficial |
Section 115A |
Many tax treaties provide taxability of dividends at the rate of 10% -15% (like treaty with Cyprus, Germany, China, Australia, Luxembourg, UK, etc.) Treaty benefits could be availed in such cases.
Distribution of dividend by an Indian company will be subject to withholding tax, as under:
|
Category of recipient/ shareholder |
Rate of withholding (including surcharge and cess) |
Relevant section |
|
Resident shareholder |
10% |
Section 194 |
|
Non-residents |
21.84% or rate as per tax treaty, whichever is beneficial
|
Section 195 read with Part II of first schedule to FA, 2020 |
Elimination of cascading effect on dividend received from the Indian company. Section 80M introduced for domestic companies that have declared dividend and are also in receipt of the dividend from another domestic company or foreign company or a business trust. A deduction is allowed with respect to the dividend received as long as the same is distributed as dividend one month prior to the due date of filing return.
Section 57 of the Act, restricts the deduction of interest expense up to 20% of dividend income and no deduction at all for other expenses incurred
Return filing obligation: Non-resident shareholder is not liable to file a tax return in India if the dividend income is subject to withholding tax in India at a rate not less than domestic tax rate (i.e. 20%)
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