Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Tuesday, March 22, 2016

TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES WILL BE HIGHER

As per Current Provision for Financial Year 2015-16 the Domestic Company shall, in addition to the income tax chargeable in respect of its total income, be liable to pay additional income tax on any amount declared, distributed or paid by such company by way of dividend (whether interim or otherwise), whether out of current or accumulated profits.
As per amendment made by finance bill 2016, the receiver of dividend is liable to pay tax @ 10% on such dividend if the amount of dividend exceeds Rs. 10 lakhs.
Now in case of Private Limited Company going in Profits, the withdrawal of the profits by the Shareholders has been made costlier than earlier.  Now the Shareholder in case gets more than Rs.10 Lac as dividend will have to pay tax @10% after  passing of the Finance Bill 2016.
115BBDA proposed to be inserted to provide that in addition to Dividend Distribution Tax paid by the companies which comes to the tune of 17.64705 %, the recipients i.e  individuals, HUFs and firms receiving dividend in excess of Rs.10 lacs per annum will pay tax @10% of gross amount of dividend.
 Where the recipient is a company, section is not applicable. The reasoning behind introduction of this section is that the tax payer having high dividend income are subjected to tax only u/s 115O whereas such income in their hands would have been chargeable to tax @30%.
Rate of STT in case of option is proposed to be increased from 0.017% to 0.05% w.e.f. 01.06.2016
Earlier Provision upto 31.03.2016 is hereunder:
Dividend Distribution Tax Rate :
Such dividend distribution tax shall be payable @ 17.65% plus surcharge @ 12% plus education cess @ 2% plus SHES @ 1% of amount so declared, distributed or paid (effective tax rate after grossing up w.e.f. 1-10-2014)
·         Exemption For amount received from It's subsidiary as dividend
As per section 115O-(1A) Dividend to be distributed shall be reduced by the amount of dividend received by the domestic company during the Financial Year from its subsidiary and such subsidiary company is a domestic company and where such subsidiary is a domestic company, the subsidiary has paid the tax (DDT) on such dividend or where such subsidiary is a Foreign Company, the tax is payable by the domestic company u/s 115BBD on such dividend and further shall be reduced by the amount of dividend paid to any person for or on behalf of the New Pension System Trust referred to in Clause (44) of Section 10.
·         Due Date:
The principal officer of the domestic company and the company shall be liable to pay the tax on the dividend distribution profit within 14 days from the date of declaration or distribution or payment of any dividend, whichever is earlier
·         The distributed profit on which tax is paid u/s 115-O(1) shall be exempted in the hands of share holder u/s 10(34). As per amendment made by finance bill 2016, the receiver of dividend is liable to pay tax @ 10% on such dividend if the amount of dividend exceeds Rs. 10 lakhs.
·         Interest payable for non-payment of tax by domestic companies — section 115-P:
Where the principal officer of domestic company and the company fail to pay the whole or any part of tax on distributed profits within the time i.e. 14 days, he or it shall be liable to pay simple interest @ 1% for every month or part thereof on amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.
·         Consequences for non payment of dividend distribution tax —Section. 115-Q
If principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of Section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Income-tax Act, 1961 for the collection and recovery of income tax shall apply.

The Computation of dividend may be illustrated as follows till – As per Current Provision

Particulars
Computation

Dividend Distributed
100
10000000
Rate of Dividend distributed tax
15

Grossed up Tax Rate
15/85*100 (17.647)
1764705
Surcharge
12%
  211765
E.Cess & S.H.E.C
3%
    59294
Net Effective Tax Rate
20.35765(17.647*1.12*1.03)
2035765

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