Deemed dividend
This query is : Resolved
29 August 2011
IN WHICH CIRCUMSTANCES AND CONDITIONS DIRECTORS LOAN DEBIT OR CREDIT OR LOAN WITH SHARE HOLDERS DEBIT OR CREDIT AND NON SHARE HOLDER. PLEASE CLEAR ABOUT DEEMED DIVIDEND IN A PVT. LTD. COMPANY.
30 August 2011
Conditions are :-
1) the company should be a closely held company.
2) the company should have accumulated profits.
3) the director should be a share holder.
If all the above are satisfied, the amount given to the director will be treated as deemed dividend to the extent of the accumulated profits.
For full details, requested to refer section 2 (22)(e) of the Income tax Act,1961.
1) the company should be a closely held company.
2) the company should have accumulated profits.
3) the director should be a share holder.
If all the above are satisfied, the amount given to the director will be treated as deemed dividend to the extent of the accumulated profits.
For full details, requested to refer section 2 (22)(e) of the Income tax Act,1961.
30 August 2011
sir, is there compulsory to be share holder of Director. if Director non share holder and negative balance of director in the company in that case will it treat deemed dividend. and another question is if any share holders negative balance will treat as deemed dividend.
sir please clear my query . Thanks in anticipation for your valuable replies .
sir please clear my query . Thanks in anticipation for your valuable replies .
20 July 2024
In the context of Indian corporate law and tax regulations, let's address your questions regarding deemed dividend and the role of directors and shareholders:
1. **Directorship and Shareholding:**
- **Compulsory Shareholding for Directors:** As per the Companies Act, 2013 in India, there is no statutory requirement for a director to also be a shareholder of the company. Directors can be appointed based on their qualifications, expertise, or other criteria specified in the Articles of Association of the company.
- **Impact on Deemed Dividend:** Whether a director is a shareholder or not does not directly determine if certain transactions will be treated as deemed dividend.
2. **Deemed Dividend:**
- **Definition:** Deemed dividend refers to certain payments or benefits provided by a company to its shareholders or their associates which are deemed to be dividends for tax purposes, even if they are not formally declared as dividends.
- **Conditions:** According to Section 2(22) of the Income Tax Act, 1961, payments or distributions by a company to its shareholders can be considered deemed dividends under specific circumstances. These include:
- **Payment by way of advance or loan:** Any payment made by a company to a shareholder (including a director who is also a shareholder) can be treated as a deemed dividend.
- **Accumulated profits:** If such payments are made out of accumulated profits of the company, they may fall under the definition of deemed dividend.
3. **Negative Balance and Deemed Dividend:**
- **Director's Negative Balance:** If a director has a negative balance in their director's account (due to advances taken or other transactions), this does not automatically classify the transactions as deemed dividends. Deemed dividend is more about transactions that benefit shareholders in a manner similar to dividends.
- **Shareholder's Negative Balance:** Similarly, if a shareholder has a negative balance in their shareholder's account, it does not by itself constitute deemed dividend unless there are specific transactions or benefits received that fit the criteria under Section 2(22).
4. **Legal Interpretation and Advice:**
- **Professional Advice:** Given the complexities involved in tax laws and corporate governance, it is advisable to consult with a qualified Chartered Accountant or tax advisor who can provide guidance tailored to the specific circumstances of the company and its stakeholders.
- **Documentation and Compliance:** Proper documentation of transactions, clear understanding of corporate governance norms, and adherence to tax regulations are crucial to avoid unintended tax implications such as deemed dividend.
In summary, the status of being a shareholder or a director, and the presence of negative balances alone, do not directly trigger deemed dividend. Specific transactions and their nature relative to accumulated profits and the benefits conferred to shareholders are key factors in determining if deemed dividend provisions apply.
1. **Directorship and Shareholding:**
- **Compulsory Shareholding for Directors:** As per the Companies Act, 2013 in India, there is no statutory requirement for a director to also be a shareholder of the company. Directors can be appointed based on their qualifications, expertise, or other criteria specified in the Articles of Association of the company.
- **Impact on Deemed Dividend:** Whether a director is a shareholder or not does not directly determine if certain transactions will be treated as deemed dividend.
2. **Deemed Dividend:**
- **Definition:** Deemed dividend refers to certain payments or benefits provided by a company to its shareholders or their associates which are deemed to be dividends for tax purposes, even if they are not formally declared as dividends.
- **Conditions:** According to Section 2(22) of the Income Tax Act, 1961, payments or distributions by a company to its shareholders can be considered deemed dividends under specific circumstances. These include:
- **Payment by way of advance or loan:** Any payment made by a company to a shareholder (including a director who is also a shareholder) can be treated as a deemed dividend.
- **Accumulated profits:** If such payments are made out of accumulated profits of the company, they may fall under the definition of deemed dividend.
3. **Negative Balance and Deemed Dividend:**
- **Director's Negative Balance:** If a director has a negative balance in their director's account (due to advances taken or other transactions), this does not automatically classify the transactions as deemed dividends. Deemed dividend is more about transactions that benefit shareholders in a manner similar to dividends.
- **Shareholder's Negative Balance:** Similarly, if a shareholder has a negative balance in their shareholder's account, it does not by itself constitute deemed dividend unless there are specific transactions or benefits received that fit the criteria under Section 2(22).
4. **Legal Interpretation and Advice:**
- **Professional Advice:** Given the complexities involved in tax laws and corporate governance, it is advisable to consult with a qualified Chartered Accountant or tax advisor who can provide guidance tailored to the specific circumstances of the company and its stakeholders.
- **Documentation and Compliance:** Proper documentation of transactions, clear understanding of corporate governance norms, and adherence to tax regulations are crucial to avoid unintended tax implications such as deemed dividend.
In summary, the status of being a shareholder or a director, and the presence of negative balances alone, do not directly trigger deemed dividend. Specific transactions and their nature relative to accumulated profits and the benefits conferred to shareholders are key factors in determining if deemed dividend provisions apply.
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