1.
SCOPE OF DEDUCTION UNDER
SECTION 80M IN RESPECT OF INTER- CORPORATE DIVIDEND EXPANDED
With effect from 01-04-2020, the Finance Bill, 2020
proposed to abolish the Dividend Distribution Tax and move to the traditional
system of taxation wherein companies do not pay DDT on dividend and, the
shareholders are liable to pay tax on such income at the applicable tax rate.
To remove the cascading effect where a domestic company receives dividend from
another domestic company, a new section 80M has been introduced. This section
provides that inter-corporate dividend received by a domestic co. from another
domestic co. shall be reduced from the total income of that company that
further distributes such dividend income to the shareholders within one month
before the due date of filing of return.
The Finance Bill, 2020 (as passed by the Lok Sabha) expanded
the scope of deduction available under Section 80M to include the dividend
received from a foreign company and business trust. Thus, a domestic company
can claim deduction under section 80M even in those cases where dividend
received from a foreign company or business trust is further distributed to
shareholders within one month before the
due date of filing of return.
2.
RATE OF TDS ON DIVIDEND
DISTRIBUTED TO A NON-RESIDENT OR FOREIGN COMPANY
With
effect from 01-04-2020, the Finance Bill, 2020 proposed to abolish the Dividend
Distribution Tax and move to the traditional system of taxation wherein
companies do not pay DDT on dividend
and, the shareholders are liable to pay tax on such income. As dividend shall
be taxable in the hands of shareholders, the domestic companies are also
required to deduct tax while distributing the dividend income to shareholders.
Where
the dividend is received by a person resident in India, it shall be chargeable
to tax at normal tax rates as applicable in his case. Further, the person
paying the dividend shall be required to deduct tax under section
194 at the rate of 10%.
The taxability of dividend income in the hands of a
non-resident or foreign company is
governed by the provisions of the domestic law or provisions of double taxation
avoidance agreements (DTAA), whichever is more beneficial to the assessee. As
per the Income-tax Act, the dividend
received by a non-resident person or a foreign company is taxable at the
special rate of 20%. Whereas, as per most of the DTAAs India has entered into with foreign
countries, the dividend is taxable in the source country in the hands of the
beneficial owner of shares at the rate ranging from 5% to 15% of the gross
amount of the dividends.
The person paying the amount of dividend to a
non-resident person or a foreign company shall deduct tax under section 195 at
the ‘rates in force’, which is provided
in Part-II of the First Schedule of the Finance Act. In the Finance
Bill, 2020, though the relevant amendments had been proposed for taxability of dividend income in hands of
shareholders and deduction of tax therefrom. But, Part-II of the First Schedule
of the Finance Act was not amended to
provide a specific rate for deduction of tax in respect of dividend income.
Thus, dividend income was falling in the residuary entry of Part-II of the
First Schedule of the Finance Act which provides for deduction of tax at the
rate of 30% in case of a non-resident and 40% in
case of a foreign company. Thus, the tax would have been required to be deducted
at a very higher rate in such cases.
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