INSUBCONTINENT EXCLUSIVE:
How will the tax on dividend play out when a company declares dividend before March 31, but shareholders receive the money on or after April
1? The law has left a gap for overzealous tax officers to interpret it in a way where both the company and shareholders are asked to fork
out tax.
According to the amendments proposed in the Union budget, the dividend distribution tax (DDT) would not be payable by companies or
shares and MF units would now be removed with effect from April 1, 2020.
Thus, while DDT is payable on any dividend/income which is
hardship and litigation, depending on how the Income Tax Department interprets the law
The Companies Law allows distribution of dividend within a month of declaration of the dividend
So, a company which holds meeting to declare dividend around mid-March and pays by mid-April is in compliance with the Companies Law but may
This is because there is always a risk that such a company could be liable to pay DDT and the shareholder could also be asked to pay tax on
dividend income as benefit of S 10 (34) will not be available
hold their board meetings well before the closing of the financial year to declare and distribute dividend within the timeframe laid down
In some cases companies may choose to make the actual dividend payment after March 31 due to cash-flow reasons but nonetheless are keen to
outlandish stand while completing assessment
So, nothing should be left to interpretation or chance
declared prior to April 1, 2020 (and on which DDT has been paid), but has been received by the shareholder or unit holder on or after April
accounts.
One way to dispel doubt would be to cross-link the amendments in section 115-O / 115-R to the amendments in section 10(34)/ 10(35)
to make it clear that only dividend or income which has not been subject to DDT will be taxed in the hands of the shareholder or unit
holder.
Hitesh D Gajaria, partner and cohead of tax at KPMG India, also agrees that interim dividends declared prior to March 31, 2020, but
paid out in April or thereafter could potentially face the risk of both DDT as well as shareholder level taxation
have a substantial control are grappling with
Lakhani.
Public sector undertakings, however, face a different dilemma
These units would be better off announcing dividend in the new financial year and avoid DDT
But, they could well be under compulsion to announce as well as distribute dividend before March 31 to let the government book the amounts
as earnings for the current fiscal.