Dividend income was made exempt by virtue of section 10 (33) inserted by Finance Bill, 1997 which was later on changed to 10(34) by Finance Bill, 2003 and before that dividend income was taxable in the individual hands of recipient. However to tax it at a single point government introduced section 115-O in 1997 after which company was required to pay tax on dividend income and same would be exempt in the hands of recipient.
After this it came to notice of CBDT that many big investors, who are mainly investing into equities and who have huge wealth and are normally in highest slab of income tax are just paying approximately 20% tax on their dividend income and hence section 115BBDA was introduced by Finance bill, 2016 wherein tax would be charged at the rate of 10% on such dividend which is in excess of Rs. 10 lakh.
Now, with Finance Bill 2020 government has scrapped DDT and is again going back to the old rule wherein dividend income would be taxed in individual hands of assessee who receive’s it.
However this rule would not apply to dividend which has been declared, distributed or paid by such company on or before 31.03.2020.
Relevant amendments to section 10(34), 115-O and 115BBDA are as under:
in clause (34), after the proviso, the following proviso shall be inserted, namely:––
Provided further that nothing contained in this clause shall apply to any income by way of dividend received on or after the 1st day of April, 2020 other than the dividend on which tax under section 115-O and section 115BBDA, wherever applicable, has been paid;
In section 115-O of the Income-tax Act, in sub-section (1), after the words, figures and letters “on or after the 1st day of April, 2003”, the words, figures and letters “but on or before the 31st day of March, 2020” shall be inserted with effect from the 1st day of April, 2021.
In section 115BBDA of the Income-tax Act,— (a) in sub-section (1), for the words “or companies”, the words, figures and letters “or companies on or before the 31st day of March, 2020” shall be substituted with effect from the 1st day of April, 2021;
Thus, from the above amendment made by Finance Bill, 2020 it is clear that DDT shall not applicable on dividend declared, distributed and paid after 01.04.2020 and it shall be taxed in hands of person receiving the same as income from other sources and chargeable to tax at respective slab rate. However if same is either declared, distributed or paid before 31.03.2020 no tax needs to be paid on same u/s 10(34) except 115BBDA.
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