Dividend Tax

Dividend tax is an Income tax on dividends received by shareholders of a company.

What is Dividend?

Dividends are payments made from company's earnings or profits, to its shareholders, by the company. There are three types of Dividends:

  1. Final Dividend

  2. Interim Dividend

  3. Deemed Dividend

On this page:

Types of Dividends

Final Dividend

Final Dividend refers to dividend as approved in Annual General Meeting.

Interim Dividend

Interim Dividend refers to dividend declared and paid by the Board of Directors subject to the approval of Shareholders in Annual General Meeting.

Dividend Income Tax Calculation Dividend Tax In India

Deemed Dividend

  1. Any distribution by a company of accumulated profits to its shareholders;

  2. Any distribution made to the shareholders of a company on its liquidation;

  3. Any distribution to its shareholders by a company on the reduction of its capital;

  4. Any payment by a company, not being a company in which public are substantially interested, by way of advance or loan to related party;

  5. Any distribution to its shareholders by a company of debentures, debenture-stock or deposit certificates in any form, whether with or without interest;

  6. Any distribution to its preference shareholders of shares by way of bonus to the extent to which the company possesses accumulated profits;

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Dividend Chargeability

Any dividend, which is covered by section 115-0, is exempt in the hands of the receiver u/s 10(34).

Deemed dividend is taxable in the hands of the shareholders. If you receive deemed dividend you can't claim deduction u/s 80L & 80M.

Dividend income shall be included in the total income of an assessee as under:

Description Year of Chargeability
Final Dividend Previous year in which it is declared by shareholders in Annual General Meeting.
Interim Dividend Previous year in which it is made unconditionally available to the member.
Deemed Dividend Previous year in which it is distributed or paid.

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Dividend Income Calculation

Dividend income is computed as under: -

Dividend Received XXX
Less: -
Commission and Brokerage Paid to Bank XXX
Commission and Brokerage Paid to Others XXX
Any other Expenditure XXX
----
XXX
----
Net Dividend XXX
Less: - Exempt under section 10(34) XXX
----
Taxable Dividend XXX
----

Taxable dividend is included in your total taxable income under the head "Income from Other Sources".

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Corporate Dividend Tax

A domestic company, which declares, distributes or pays dividend on or after 01-April-2003, whether out of current or accumulated profits, shall be liable to additional tax (Dividend Distribution Tax) at 15% (Surcharge, Education Cess and Secondary Education Cess extra) on the dividend amount as per section 115-O.

The company paying deemed dividend is liable to deduct tax on the dividend amount.

Dividend paid by an Indian Company outside India is deemed to accrue or arise in India. Hence taxable in India.

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