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Dividend distribution tax - which assessment year?

CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)

11 September 2016

A domestic company declares final dividend for F.Y. 2015-2016 in the Annual General Meeting held in August 2016 and needs to pay dividend tax thereon. Which Assessment year should be mentioned on challan? Is it A.Y. 2015-2016 or A.Y. 2016-2017?

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9 Replies

CA Prateek Garg (CA in Practice) (1447 Points)
Replied 11 September 2016

Divided distribution tax is payable on dividend declared during the PY...

Year to which it relates is irrelevant..

Hence tax on dividend declared in FY 2016-17 (irrespective of year to which it relates) is payable in PY 2016-17 (AY 2017-18)

Regards

CA Prateek Garg

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Akshay Shah (Practising Chartered Accountant) (29 Points)
Replied 12 September 2016

Assessment year will be AY 2016-17 as it is releveant to that year. Dividedn was proposed/ declared in FY 2015-16 related to AY 2016-17 so tax to be paid for AY 2016-17.

Regards,

CA Akshay Shah

CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)
Replied 12 September 2016

Any clarification or notification from IT dept?

Akshay Shah (Practising Chartered Accountant) (29 Points)
Replied 12 September 2016

It is general practice following for clients.

If it is interim dividend then it is fine to pay with year in which it is paid but final dividend DDT has to pay with AY which it relates to.

CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)
Replied 12 September 2016

But in which year's tax audit will it be mentioned? I think next years audit report.

Say a company declares dividend in AGM held on 30th September 16 and pays tax in 1st week of October 16. In this case, Tax audit report needs to be filed before 30th September 16, by which date the dividend tax is not paid. So, I believe dividend payment as well as tax thereon will appear in the 3CD report of next year i.e. A.Y. 2017-2018. So, assessment year should also be mentioned as 2017-2018 and not 2016-2017.

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Akshay Shah (Practising Chartered Accountant) (29 Points)
Replied 12 September 2016

Reporting is another thing but for payment you should take assessment year to which it relates.

CA Prateek Garg (CA in Practice) (1447 Points)
Replied 12 September 2016

115-O. Tax on distributed profits of domestic companies.

(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent.

Section 115O(1) clearly states that DDT becames payable on either declration or distribution or payment of dividend... So Declration, Distribution or Payment is the taxable event which triggers the tax libility.. Proposal of dividend by board requires no tax payment....

While filing the return for a year you need to consider the dividends declared, distributed or paid during that year...

In your case, since none of these event has happended during the PY 2015-16, no tax is payable for PY 2015-16 (AY 2016-17)

Though declration and payment both events has happened in PY 2016-17 hence tax is payable for PY 2016-17 (AY 2017-18)

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CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)
Replied 12 September 2016

What wold be the tax rate of dividend in case it was increased in Feb 16 budget to say 20% as compared to 15%. If you say 15%, then we have to take AY 16-17. If you say 20%, then we have to take AY 17-18.