INCOME TAX BENEFITS FOR DIVIDEND EARNING
Income from dividends: All
dividends paid by an Indian company must be deemed to accrue or arise in India.
Under section 10(34), income from dividends referred to in section 115-O are
exempt from tax in the hands of the shareholder. It may be noted that dividend distribution
tax under section 115-O does not apply to deemed dividend under section 2(22)(e),
which is chargeable in the previous year in which such dividend is distributed
or paid.
WHAT IS DEEMED DIVIDEND, TAXABILITY OF DEEMED DIVIDEND,
Loan or Advance given by Private
Limited Companies to their shareholders
holding 10% or more voting power or to a concern in which such shareholder has
substantial interest like director and
family members. Such type of loan or
advance is treated as deemed dividend which is covered under section 2(22)(e)
and this part of divident is taxable in the hands of shareholders
WHAT IS SECTION 2(22)(E) OF INCOME TAX ACT 1961
Section 2(22)(e) of the Income
Tax Act, 1961 plainly seeks to bring within the tax net accumulated profits
which are distributed by closely held companies to its shareholders in the form
of loans. The purpose being that persons who manage such closely held companies
should not arrange their affairs in a manner that they assist the shareholders
in avoiding the payment of taxes by having companies pay or distribute, what
would legitimately be dividend.
TAXABILITY OF DEEMED DIVIDEND UNDER SECTION 2(22)(E)
Deemed Dividend is not taxable in
the hands of company .
As per sec 2(22)(e) Deemed
Dividend is taxable in the hands of
shareholder.
Deemed Dividend which come u/s 2(22)(e) is not exempt as per sec 10(33)
of the Income Tax Act.
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