how dividend increase compnay tax liability.
This query is : Resolved
20 June 2011
hi
my client having pvt ltd co. his remuneration is 50 lacks.company net profit is for f.y.10-11 is 57 lacks. on above net profit company will pay income tax @ 30% i.e.1710000/ So company PAT Is 3990000/. now f.y.11-12 instead of remuneration my client want 50 lack as dividend.so his personal tax liability become NIL. so can any one please explain me in detail now what is burden of tax on company ?
my client having pvt ltd co. his remuneration is 50 lacks.company net profit is for f.y.10-11 is 57 lacks. on above net profit company will pay income tax @ 30% i.e.1710000/ So company PAT Is 3990000/. now f.y.11-12 instead of remuneration my client want 50 lack as dividend.so his personal tax liability become NIL. so can any one please explain me in detail now what is burden of tax on company ?
20 June 2011
The burden on tax of the company is 30%+3% on 107 (57+50) in the first place instead of only on 57 if remuneration is not paid to the director. The profit of 57 is after payment of remuneration to the director.
If dividend of 50 is paid instead of remuneration then the payment has to pay additional tax of 15%+3% as dividend declaration tax. This is additional burden on the company.
If no remuneration is paid then the company has to pay tax @ 30%+3% on 107 plus 15%+3% on 50 lacs which comes to 41.36. As the remuneration is paid the company is paying only17.10 + the director is payming at the slab rate. Now, you decide which one is better and take the call accordingly.
If dividend of 50 is paid instead of remuneration then the payment has to pay additional tax of 15%+3% as dividend declaration tax. This is additional burden on the company.
If no remuneration is paid then the company has to pay tax @ 30%+3% on 107 plus 15%+3% on 50 lacs which comes to 41.36. As the remuneration is paid the company is paying only17.10 + the director is payming at the slab rate. Now, you decide which one is better and take the call accordingly.
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20 June 2011
Respected sir,
Thanks for your reply. so in this case on net profit of Rs. 107 co will pay 41.36 including DDT. SO NOW COMPANY PAT IS 65.64/ so overall company also in profit.(m i right ?) now my query is from which bank account should i PAY DDT ? From regulor account or new bank account ? if new account then i need to transfer dividend amount of 50 lac + DDT Rs.8.50/lac in new account. ? during the year if company paying advances to director,can it adjusted against dividended ?
Thanks for your reply. so in this case on net profit of Rs. 107 co will pay 41.36 including DDT. SO NOW COMPANY PAT IS 65.64/ so overall company also in profit.(m i right ?) now my query is from which bank account should i PAY DDT ? From regulor account or new bank account ? if new account then i need to transfer dividend amount of 50 lac + DDT Rs.8.50/lac in new account. ? during the year if company paying advances to director,can it adjusted against dividended ?
20 June 2011
There is no specific provision for payment of dividend distribution tax. The same can be paid from the regular account.
As regards advance to directors the same cannot be adjusted against dividend but by giving advance to director you are inviting problem from Income Tax angle and the provisions of Section 2(22)(e) i.e deemed dividend shall be applicable. Hence, in my opinion no advance to director be given.
As regards advance to directors the same cannot be adjusted against dividend but by giving advance to director you are inviting problem from Income Tax angle and the provisions of Section 2(22)(e) i.e deemed dividend shall be applicable. Hence, in my opinion no advance to director be given.
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20 June 2011
Thank You sir.
20 June 2011
Kindly let me know what is your actual probem. Is your directors are afraid in paying taxes? Or are they going to purchase shares in other company?. Let us analyse the thing indifferent manner
Total tax payable by the com is 41.36
Profit of the company shall be PAT 65.64
Against which you are to pay dividend 50.00
Net Surplus transferred to R & Surpl is 15.64
Other wise Company to pay tax 17.10
Director to pay tax on 50 say 15.00
total tax payable 32.10
(If director is investing in LIC or other modes + basic exemption the tax liability shall also be reduced to that extent. So why you want to pay double the amount which you have worked out to be 65.64? I have failed to understand. If you pay to the directors the remuneration the the cash flow in the group shall increase by 32.00. I want to know for my knowledge only.
Total tax payable by the com is 41.36
Profit of the company shall be PAT 65.64
Against which you are to pay dividend 50.00
Net Surplus transferred to R & Surpl is 15.64
Other wise Company to pay tax 17.10
Director to pay tax on 50 say 15.00
total tax payable 32.10
(If director is investing in LIC or other modes + basic exemption the tax liability shall also be reduced to that extent. So why you want to pay double the amount which you have worked out to be 65.64? I have failed to understand. If you pay to the directors the remuneration the the cash flow in the group shall increase by 32.00. I want to know for my knowledge only.
21 June 2011
Dear sir,
NO my director not going to purchase any other company shares.I hvae same discussion with my director, and as you above mention we are also come to the same concultion. and director not agree to declare dividend as company liquidity is blcoked. and compnay also paying more taxes.
as you ask me above its fact that my director want to avoied havey taxtion, but this is not correct way. sir can you help me how can my director save taxes in his personal returns.
NO my director not going to purchase any other company shares.I hvae same discussion with my director, and as you above mention we are also come to the same concultion. and director not agree to declare dividend as company liquidity is blcoked. and compnay also paying more taxes.
as you ask me above its fact that my director want to avoied havey taxtion, but this is not correct way. sir can you help me how can my director save taxes in his personal returns.
21 June 2011
Yes why not but for that can you mail me the required data at my email ssunderagarwal@gmail.com, 9870243410
1) Income from Salary
b) Investment in LIP
3) What is the bifurcation of salary
4) Other income
1) Income from Salary
b) Investment in LIP
3) What is the bifurcation of salary
4) Other income
21 June 2011
sure i will email you detils. thank you.
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