CHAPTER XII–D OF THE INCOME-TAX ACT

SPECIAL PROVISIONS RELATING TO TAX ON

DISTRIBUTED PROFITS OF DOMESTIC COMPANIES
 

SECTION 115-O : TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES

• The provisions of this Section applies to a domestic company on an amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after 1.4.2003.

• The Company is required to pay the Dividend Distribution Tax within 14 days from the date of declaration or distribution or payment of any dividend whichever is earlier.

• The said dividend distribution tax is in addition to the income tax chargeable on the total income of the Company and the same shall be payable @15% and the same shall be increased by Surcharge @10%, and such aggregate of tax and surcharge shall be further increased by an education cess @2% and higher education cess @1% .

For the purpose of levying dividend distribution tax following amounts shall be reduced from the Dividend so distributed :

1. W.e.f. 1.4.2008 where the domestic company has received any dividend from its subsidiary company (where its share holding is more than 50% of its nominal capital), and if such subsidiary has paid dividend distribution tax on dividend declared by it, then the amount of such dividend shall be reduced from the amount of dividend liable to tax, provided the domestic company itself is not a subsidiary of any other company, further provided that the same amount of dividend shall not be taken into account for deduction more than once.

2. W.e.f. 1-4-2009 where the domestic company has paid the amount of dividend to any person for and on behalf of, the New Pension System Trust established on the 27th day of February, 2008 under the provisions of the Indian Trusts Act, 1882.

• The expression ‘dividend’ shall have the same meaning as is given in clause (22) of Section 2, except sub-clause (e) of clause (22) of Section 2.

• The Section applies to dividend payments made either out of current or accumulated profits.

• The dividend so paid will be eligible for exemption for the shareholders under Section 10(34).

• The Dividend Distribution Tax is payable by a Domestic Company even if no income-tax is payable on its total income.

• The aforesaid tax will be treated as the final payment of the tax in respect of the amount declared, distributed or paid as dividends and no further credit shall be claimed by the company or by any other person in respect of the amount so paid.

Exemptions for Companies Developing, Operating or Maintaining SEZ

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 the current income either in the hands of the Developer or enterprise or the person receiving such dividend.

Section 115-P : Interest payable for non-payment of tax by domestic companies

In case of delay in deposit of the tax on distributed profits U/s 115-O in respect of whole or any part of the tax within the prescribed time limit of 14 days, the Company shall be liable to pay simple interest @ 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.

Section 115-Q : When Company is deemed to be in default

Where any principal officer of a domestic company and the company defaults to pay tax on distributed profits in accordance with the provisions of Section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Income Tax Act, 1961 as applicable for the collection and recovery of taxes thereon shall apply accordingly.

CHAPTER XII–E OF THE INCOME-TAX ACT

SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME

SECTION 115-R : TAX ON DISTRIBUTED INCOME TO UNIT HOLDERS

1. The provisions of this Section applies to any amount of income distributed by the specified company [as referred to in section 2(h) of the UTI (Transfer of Undertaking and Repeal) Act, 2002] or a Mutual Fund to its unit-holders.

2. The specified company and/ or the Mutual fund as the case may be shall be liable to pay additional income-tax on such distributed income. However this section would not be applicable to any income distributed by administrator of the specified undertaking to the unit holders, or to a unit holder of equity oriented funds in respect of distribution made from such funds. (For the purpose of this clause “Administrator” and “specified company” shall have the meaning assigned to them in explanation to clause 35 of section 10).

3. The Tax on the Distributed Income shall be charged as follows :

1. 25% on income distributed by a money market mutual fund or a liquid fund.

2. 12½% on income distributed to any person being an individual or a Hindu undivided family by a fund other than money market mutual fund or a liquid fund: and

3. 20% on income distributed to any other person by a fund other than money market mutual fund or a liquid fund.

4. The tax on distributed income as referred to in clauses (i), (ii), and (iii) above shall be increased by surcharge @10%, and such aggregate of tax and surcharge shall be further increased by an Education cess @2% and higher education cess @1%.

4. The Tax on the Distributed Income shall be paid into the Central Government Treasury within 14 days from the date of distribution or payment of such income, whichever is earlier.

5. In case of Unit Trust of India statement of distributed income in Form No. 63 and in case of Mutual Fund statement of distributed income in Form No. 63A shall be filed on or before 15th day of September in each year verified by specified persons (an accountant) in the manner indicated therein to the Assessing Officer within whose area of jurisdiction, the principal office of the Unit Trust of India or the concerned Mutual Fund is situated;

6. No deduction under any other provisions of the Income-tax Act, 1961 shall be allowed to the Unit Trust of India or the Mutual Fund in respect of the income that has been charged to tax under the provisions of this section.

Section 115-S : Interest payable for non-payment of tax

Where the person responsible for making payments of the income distributed by the Unit Trust of India or a Mutual Fund as the case may be, fails to pay the whole or any part of the tax as is referred to in sub-section (1) or sub-section (2) of section 115R, within the time allowed under sub-section (3) of that section, he or it shall be liable to pay simple interest at the rate of 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.

Section 115-T : When UTI OR MUTUAL FUND is deemed to be ASSESSEE In default

Where any person responsible for making payment of income distributed defaults to pay tax on distributed profits in accordance with the provisions sub-section (1) and sub-section (2) of Section 115-R, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Income Tax Act, 1961 as applicable for the collection and recovery of taxes thereon shall apply accordingly.