Deduction u/s 80M for dividend received u/s 2(22)(f) whether eligible deduciton

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Yogesh Shah (Querist)
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14 December 2024 Suppose company buys back its shares on or after 1st Oct, 2024. The amount so paid is treated as dividend u/s 2(22)(f) as per amedned provisions. Whether dividend paid u/s 2(22)(f) of I T Act, 1961 is eleigible for deduction u/s 80M. Kindly advises us.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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15 December 2024 Under Section 2(22)(f), any payment by a company to its shareholders, which is not formally classified as a dividend, can still be treated as a dividend for tax purposes under specific conditions. This includes:
Accumulated Profits: The payment must be made out of the company's accumulated profits.
Benefit or Loan: This provision applies to payments by way of advancement or loan or by way of any other distribution to shareholders.

Amendments Effective from October 1, 2024:
Share Buybacks: The amount paid by a company to buy back its shares is now considered a dividend under Section 2(22)(f). This means:
Taxation Shift: The tax liability for this deemed dividend moves from the company (which previously paid Dividend Distribution Tax, DDT, now abolished) to the shareholders receiving the buyback amount.
Tax Implications for Shareholders: Shareholders are now liable to pay income tax on the buyback amount as if it were a dividend, subject to their applicable tax slab rates.
There might be cases where this new interpretation of buybacks as dividends could be tested in court, especially concerning past or ongoing transactions.