How does the taxation of dividend works?, There has actually been confusion given that many days in the minds of the readers about how the dividend is taxed in India, whether it is taxed by the business which is paying or to the person to which they are paying to. I have actually clarified the same by method of this post. This post will make sure that you get the ideal understanding of what you are willing to learn. Dividend is such earnings which is the outcome of best investment. Now you can scroll down below n check more details for ” Taxation of dividend– How Does it works?”
Material in this Article.
Taxation of dividend– How Does it works?
Definition of Dividend—
The definition of dividend has actually been given in Area 2(22) of the Earnings tax Act. It consists of—
- Distribution made from the collected benefit from whatever name called.
- Circulation by way of debentures, stock, or deposit certificate etc to the investors.
- Distribution made for the decrease in the capital to the shareholders, whether it has been capitalized or not.
- Whatever quantity distributed amongst the shareholder in case of liquidation by whatever name called.
- Any payment to shareholder by way of loans or by any other way or kind.
It would not consist of—
How dividend is taxed?
Really the dividend is not taxed by the receiver or the beneficial but by the payer of dividend, i.e. the dividend is paid by company so the business would be accountable to deduct the tax and pay in the name of “Dividend Circulation Tax”. Thus the income of Dividend is exempt in the hands of receiver or the investors.
Rate of Tax:
The rate at which the business needs to pay tax is 15% cess which is applicable. It would also cover considered dividend under area 2(22)( e), however where the situation is reverse. Here the dividend is taxable in the hands of financier or the receiver and not the company.
Must Check Out–
- Dividends– Meaning and Various Types
- Deemed Dividend– Section 2(22)( e)
- Tax treatment of dividend received from a foreign company
- Dividend Circulation Tax
When it is to be paid?
There has been special arrangement concerning the payment of the dividend tax paid where the earliest of the below should be taken and from that date within 14 days the tax need to be transferred
- Statement of dividend
- Circulation of dividend
- Payment of dividend
Relief in case of double taxation—
Where the dividend is received from the foreign company than the tax would be levied by the country in which the company is located and in which the dividend is paid, so there would be taxation 2 times on the same dividend which would double tax dividend. So to prevent the same, there specifies section called 91 which would offer relief if there is no Double Tax Avoidance Contract
Effects of not paying the tax:
If the dividend tax is not paid within the time limitation provided in the act than the interest would be imposed at the rate of 1% each month or part there of on the amount of such tax for the period beginning on the date after the last date on which the tax is payable.