CORPORATE AND PROFESSIONAL UPDATE DATED MARCH 6,2016
Taxability of Dividend in the hands of Shareholders- Union Budget 2016
Taxation of dividends has seen several twists and turns over the years. In order to reduce cost of collection and curb tax evasion through non-reporting of dividends by shareholders, Government had introduced section 115-O in the Income-tax code through Finance Act, 1997. The section presently provides for 15% tax on dividends distributed by a domestic company. After considering grossing up, surcharge and cess, the effective rate of dividend distribution tax (‘DDT’) stands at approximately 20%.
Finance Bill, 2016 has introduced a concept of progressive taxation of dividends. Proposed section 115BBDA seeks to tax dividends in excess of INR 1 Million @ 10% (plus surcharge and cess) in the hands of individuals, HUFs, partnership firms and LLPs resident in India.
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