DIVIDEND RECEIVED ON OR AFTER 01-04-2020 SHALL NOT BE TAXABLE IF DDT IS ALREADY PAID BY THE 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 at the applicable tax rate. Consequent amendments have also been proposed  to Section 10(34) and Section 115-O. The dividend received on or after 01-04-2020 will not be exempt in the hands of the shareholder and the company will not be liable to pay DDT on  any  amount of dividend declared, distributed or paid by the company  on or after 01-04-2020. Section 115BBDA was also proposed to be amended that shareholders receiving dividend in excess of Rs. 10 lakhs shall not be taxed if the same is declared, distributed or paid on or after 01-04-2020.

As per Section 115-O, DDT is required to be deposited by the company on the amount of dividend within 14 days of the earliest of the following dates:

1.      Declaration of dividend;

2.      Distribution of dividend; or

3.      Payment of dividend.

Similarly, tax under Section 115BBDA is required to be paid by the shareholders if the aggregate amount of dividend assessed in his income exceeds Rs. 10 lakhs during the previous year. Section 8 read with ICDS-IV provides that irrespective  of the method  of accounting followed by the assessee, any dividend (including deemed dividend) declared, distributed or paid by a company is chargeable to tax as income of the previous year in which it is so declared, distributed or paid. However, interim dividend is chargeable to tax as the income of the previous year in which it is paid.

Companies and shareholders are required to pay tax on dividend (except in case of interim dividend) on due or receipt basis, whichever is earlier. The amendment to section 10(34) provides that no exemption shall be available in respect of dividend received on or after 01-04-2020. Thus, exemption could be denied in respect of that dividend received on or after 01-04-2020 but declared on or before 31-03-2020.

To remove this ambiguity, the Finance Bill, 2020 (as passed by Lok Sabha) has made changes to section 10(34) to provide that dividend received by assessee on or after 01- 04-2020 shall not be included in his income if tax has already been paid on such dividend under section 115-O or section 115BBDA, as the case may be.