As we know Finance Act, 2020 has scrapped Dividend Distribution Tax (DDT) and therefore dividend is now a taxable income.
However, in case of companies many a time holding company receive dividend from it’s wholly owned subsidiary and then distribute same to its share holder and therefore to save such dividend from double taxation section 80M has been inserted which was scrapped by Finance Act, 2003.
Section 80M read as under:
“(1) Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company or a foreign company or a business trust, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends received from such other domestic company or foreign company or business trust as does not exceed the amount of dividend distributed by it on or before the due date.
(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.
Explanation.––For the purposes of this section, the expression “due date” means the date one month prior to the date for furnishing the return of income under sub-section (1) of section 139.”
Thus, in simple words if total income of domestic company includes any dividend income from any company i.e. domestic or foreign company or even business trust and if that domestic company distributes any dividend before due date of filing return of income of that relevant previous year it can get deduction of such dividend distributed from it’s dividend income upto the amount of dividend income.
The amount of deduction claimed in one financial year cannot be claimed in another year.
For eg: Company A earns dividend income of Rs. 500 from domestic company and Rs. 200 from foreign company and distributes dividend of Rs. 800 to its shareholder’s before filing return of income u/s 139(1) of that year then in that case it can claim deduction of Rs. 700 against dividend income. However if the amount of dividend distributed is Rs 600 then deduction u/s 80M would be of Rs 600 and company will have to pay tax on Rs. 100 dividend.
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