March 22: With the final countdown to the month of March, taxpayers are busy calculating their tax liability and making sure they pay their share of advance tax before the last date. Before finally depositing their advance tax, they should take care of certain new amendments of the Act which were not there last year and can make lot of difference in their tax liability.The dividend income from the domestic companies is such a item, which was earlier taxable. It is now fully exempt under section 10 (33). Taxpayers, while calculating taxes, should exclude the dividend income as referred in sections 10(33) and 115-0. The following points should also be kept in mind.
In the existing provisions of Income-Tax Act, 1961, corporate dividends were taxed in the hands of shareholders under the head `Income from other sources'. The companies, while paying dividend, deduct tax at source at the rates in force and issue certificates for tax deducted to the shareholders. The shareholders, in turn, show dividend incomein their return of income and claim credit for tax deducted on the basis of these certificates. Many a time, the tax deducted becomes refundable to the taxpayer.
The new amendment in the Act, therefore, introduces a new system collecting tax on profits distributed by companies by way of dividends. A new chapter (XII D ) has been inserted in the Income-Tax Act which brings to charge the profits distributed by domestic companies at a modest rate of 10 per cent. The new tax will be in addition to the income-tax chargeable in respect of the total income of the company. The new tax will be payable by the domestic company even if there is otherwise no income-tax liability.
The tax will be paid by the domestic company to the credit of the central government within 14 days from the date of (a) declaration of dividend or (b) distribution of dividend, or (c) payment of dividend, whichever is earliest.
The tax so paid by the company shall be treated as final payment of tax in respect of profit distributed and nofurther credit for tax so paid shall be claimed or allowed. No deduction under any other provision of the I-T Act shall also be allowed either to the company or to a shareholder in respect of the amount on which tax has been charged.
Failure to pay the tax within the time allowed will attract penal interest at the rate of 2 per cent per month and the company shall also be deemed to be an assessee in default.
Section 271C has also been amended to provide for penalty in cases of failure to pay the whole or any part of the tax on distributed profit. Similarly, section 276B has been amended to provide for prosecution for failure to pay to the credit of the central government the tax on distributed profits.
A new clause, namely clause (33), has been inserted in section 10 to exempt the dividend income in the hands of shareholders. The exemption will, however, be available only in respect of dividends distributed by domestic companies and not by any other entity, say, the Unit Trust of India or any othermutual fund. In order to remove any doubt on this account, sub-section (3) of section (32) of the Unit Trust of India Act, 1963, which provided for treating UTI as a company and the income distributed by it as dividend, has been omitted with effect from June 1, 1997.
The new provisions regarding payment of tax on distributed profits shall take effect from June 1, 1997. Section 194 of the I-T Act will apply to dividends paid between April 1 and May 31, 1997. The provisions regarding exemption of dividend income in the hands of shareholders shall take effects from April 1, 1998, and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years.
The Jindals are Delhi-based chartered accountants
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
