TAX PLANNING

AND
DIVIDEND
DECISION
What is Tax Planning?
• Exercise carried out by the taxpayer to meet his tax obligations in
proper systematic and orderly manner availing all permissible
exemptions, deductions and reliefs available under the act as may be
applicable to his/her case.

• WHY? The tax paid is an addition to the cost. Just as every business man
tries to maximize his profit by reducing the cost, he should also arrange
his affairs in such a way that he pays the least amount of tax.
 Tax Planning with reference to “DIVIDEND
DECISIONS”
• The dividend is the amount received by an investor, whether it's an individual or
HUF, on account of holding shares in a company.
• In simple words, it is the distribution of profits of the company to its shareholders.
• Paying dividend involves outflow of cash. The cash available for the payment of
dividend is affected by the firms investments and financing decisions.
 Dividend Distribution Tax
• Dividend constitutes income in the hands of the shareholders which ideally should
be subject to income tax
• However, the income tax laws in India provide for an exemption of the dividend
income received from Indian companies by the investors by levying a tax called
the Dividend Distribution Tax (DDT) on the company paying the dividend.
• The provisions relating to DDT are governed by Section 115O.
WHAT IS DEEMED DIVIDEND?
• Deemed Dividend is the dividend which is not actually paid as a dividend but assumed to be dividend for the
purpose of taxation under Income Tax Law.
• According to Section 2(22)(e), when a company extends a loan or an advance to:
 Any of its shareholders who has more than 10% voting power in the company or, to any concern in which such
shareholder is substantially interested or for the individual benefit of such shareholder or on behalf of such
shareholder
• To the extent the company has accumulated profits, such payment would be deemed as a dividend under
Section 2(22)(e).
• Any distribution to its shareholders by a company of assets, debentures, debenture-stock, or deposit
certificates, on reduction of capital during liquidation or 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 ;
Who is required to pay the Dividend Distribution tax (DDT), and
at what rate?

• Dividend Distribution Tax is required to be paid by the company before

actually paying or distributing the dividend.(14 days)
• While as per section 115-O of the Income Tax Act, the dividend paid or
declared by a domestic company is charged an additional 15% of tax is to be
paid. This is known as a corporate dividend tax.
• However, in case of deemed dividend under section 2(22)(e), the tax is
charged at the rate of 30%.
• A foreign company is exempted from paying dividend distribution tax on
dividend paid to its shareholders
 When is DDT to be paid?
• DDT or Dividend Distribution Tax is to be paid within 14 days of the deceleration, payment
or distribution of the dividend, whichever is earlier.
• Failure to pay the tax within 14 days would attract interest at the rate of 1% of the payable tax
from the next day of the 14th day. The interest would be charged until the time actual
payment of the tax is not made to the government.
 Special Provisions related to DDT

• There are two special provisions related to DDT; these are:

A. The dividend income received by individuals, HUF, partnership firms, and private
trusts in excess of Rs. 10 lakhs as income from dividend is taxable at the rate of 10%.
B. Next is, when the holding company declares a dividend, then amount dividend income
liable for DDT in case the holding company has also received a dividend from the
subsidiary company and both the companies are domestic, will be equal to:-
• Dividend Income declared/paid/distributed
• Less: Dividend received from the subsidiary company
 Dividend received from DOMESTIC AND
FOREIGN CO. (for shareholders)
• Case 1- Dividend Tax Income received from a Domestic Company
• As per Income Tax Act, any income received by an individual/HUF as
dividend from an Indian company is exempt from tax as the company
declaring such dividend has already deducted dividend distribution
Section 115BBDA (as introduced in the Finance Act)
• If aggregate dividend received by an individual/HUF from companies
exceeds Rs. 10,00,000, it is liable to pay tax at the rate of 10% on
dividend tax before paying the dividend.
• Case 2- Dividend Tax Income received from a Foreign Company
• As per Section 115BBD of Income Tax Act, dividend received by an
individual/HUF from a foreign company is fully taxable under the head
“Income from other sources”. The dividend received is included in the
total income of the recipient taxpayer and will be charged according to
the income tax rate slabs applicable to the taxpayer.
 BUDGET 2020 highlights
• Budget 2020 has proposed to make dividend income from shares and
mutual funds taxable in the hands of recipients at the applicable income
tax slab rates to the individual.
• The proposal is to replace DDT with a classical system of taxation i.e.
instead of levying DDT on companies; the tax should be levied in the
hands of shareholders.
“
THANKYOU
BY-
”
Manju Bagriya
BBA GEN
SEM 6
BBAG- 17072