Upto 31-05-1997,
the company was not liable to pay any income tax on the amount of
dividends declared, distributed or paid by such company. However,
such dividend was included in the income of the shareholders under
the head "income from other sources". The finance act,
1997 has introduced changes in this rule.
A) Tax on distributed profits of the Domestic company
The domestic company shall 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) on or after 1-06-1997,
whether out of current or accumulated profits. Such additional
income tax shall be payable @ 10% of the amount so ditributed. Thsi
additional tax shall be payable even if no income tax is payable by
such company on its total income.
B) Exemption of dividend in the hands of shareholders
In view of the income tax now payable by the domestic company, any
dividends declared, distributed or paid by such company, on or after
01-06-1997 shall be exempt in the hands of the shareholders.
Time limit for deposit of additional income tax :
Such additional tax will have to be paid by the principal officer
of the domestic company within 14 days from the date of :
a) Declaration of any dividend
b) Distribution of any dividend
c) Payment of any dividend, whichever is earlier
Additional income-tax is not allowed as deduction :
The company shall not be allowed any deduction on account of such
additional income tax under any provisions of the income tax act.
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