Dividend payout By an Indian Company from 1 April 2020

Article authored by Shipra Walia, W S & Associates LLP.

Union Budget 2020 proposes to abolish the levy of DDT and shift the tax incidence on dividend income to the shareholders from April 01, 2020. As per the erstwhile Section 115O of the Income-tax Act, a domestic company is required to pay DDT @ 15% plus applicable surcharge and cess, after grossing-up the amount of dividend payable to the shareholders (approx. = 20.56%).

Accordingly, now that dividends are taxable in the hands of the shareholders, companies are required to withhold taxes as per the provisions of section 195 of the Act. As per the provisions of section 115A of the Act, the rates in force for taxability of dividend is 20% plus surcharge and cess.

A non-resident shareholder receiving the divided income can also opt to obtain the beneficial tax rate under the Double Taxation Avoidance Agreement (ranging between 5% – 15%), which is subject to TRC, NO PE and form 10F to be provided by the non-resident to the payer.

Henceforth, the foreign receiver of dividend will have to file the Income-tax return declaring the income in India. A flipside Form 3CEB (for international transaction between related parties) would also be required to be filed by the receiver where dividends are received from associated enterprises.