Section 115-O of Income Tax Act, 1961

Section 115-O of Income-tax Act, 1961

Tax on distributed profits of domestic companies

According to Section 115-O(1),

  • Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section,
    • in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year,
      • any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits
        • shall be charged to additional income-tax (hereafter referred to as Dividend Distributed Tax) at the rate of 15%.

Thus, till Assessment Year 2020-21, if a shareholder gets dividend from a domestic company then he shall not be liable to pay any tax on such dividend as it is exempt from tax under section 10(34) of the Act. However, in such cases, the domestic company is liable to pay a Dividend Distribution Tax (DDT) under section 115-O.

But Finance Act, 2020 has abolished the DDT, and now dividends are taxed in the hands of the investors.

Therefore, the provisions of Section 115-O shall not be applicable if the dividend is distributed on or after 01-04-2020. Thus, if the dividend is distributed on or after 01-04-2020 the domestic companies shall not liable to pay DDT and, consequently, shareholders shall be liable to pay tax on such dividend income.

For more details on Taxation on Dividend Income, visit here: www.deepgyan.com/tax-on-dividend-income/

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