Dividend Distribution Tax

Background

• Under section 115-O of the Act, Dividend Distribution Tax (‘DDT’) is an additional tax payable at 20.36% (including applicable cess and surcharge) by a Domestic Company on its distributed profits
• If DDT is not paid within 14 days of declaration/ distribution/ payment of dividend (whichever is the earliest),
• Company would be deemed to be an ‘assessee in default’ as per Section 201 of the Act
• Levy of interest at 1% for every month or part of a month, for delay
• Possible imprisonment under section 276B of the Act
• DDT is payable separately, over and above the income tax liability of a Company
• No deduction or credit allowed to the company for the DDT paid
• No DDT is payable, if dividend is paid to any person for or on behalf of the New Pension System Trust
• Section 115BBD provides for concessional rate of tax of 15% on dividend received by an Indian Company from its foreign subsidiary

 

Dividend

(22) "dividend" includes—

 

(a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;
 

(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus,
to the extent to which the company possesses accumulated profits, whether capitalised or not ;
 

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ; 

 

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the
company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day
of April, 1933, whether such accumulated profits have been capitalised or not ;
 

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares
entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

 

but "dividend" does not include—

 

(i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;
 

(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the
1st day of April, 1965;
 

(ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;
 

(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;
 

(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);
 

(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).
 

Explanation 2.—The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place.

 
Explanation 3.—For the purposes of this clause,—
 

(a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ;
 

(b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;

 

Key aspects

• DDT shall not be leviable on distributed profits of a company that is a unit located in IFSC w.e.f tax year 2016-17 provided such company is deriving income solely in convertible foreign exchange. Further, such exemption is available both to the payer as well as recipient of such dividend.

• Where a business trust holds 100% of the share capital of a domestic company, DDT shall not be chargeable in respect of any amount declared, distributed or paid by the specified domestic company by way of dividends to the business trust out of its current income on or after the date of acquisition of such holding by the business trust (w.e.f from 1-6-2016).

• Where the total income of an individual, Hindu undivided family or a firm, resident in India includes any income in aggregate exceeding INR 10 Lakh, by way of dividends declared, distributed or paid by a domestic company or companies, the income-tax payable shall be the aggregate of –
• The amount of income-tax calculated on the income by way of such dividends in aggregate exceeding INR 10 Lakh, at the rate of 10% and

• The amount of income-tax with which assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of dividends.

• Further, no deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee in under the Act in computing the income by way of dividends