Samode Group, comprised of diversified business entities, is having its registered office located at Jaipur with various business verticals located at different places within and outside the country. The Board of directo

CS Professional · Direct Tax Law & Practice · PYQS · December 2019
Samode Group, comprised of diversified business entities, is having its registered office located at Jaipur with various business verticals located at different places within and outside the country. The Board of directors regularly have meetings with the heads of each of the business verticals, along with group Finance Director, Company Secretary, Director Taxation and other senior managers and consultants, for reviewing the business results of each of the units and to sort out the various issues. A meeting of all these heads was scheduled for 30th August, 2019 to discuss the various matters relating to taxation and to ascertain as to filing of the return of income of the group companies for the A.Y. 2019-20. The matters which were scheduled for discussion in this meeting, as listed were as under: (5) Samode Group Hotels Ltd. has distributed dividend of ₹ 230 lakh on 1st Jan., 2019 to its shareholders. Samode Group Hotels Ltd. has received dividend of ₹ 60 lakh on 30th Dec., 2018 from the domestic subsidiary company, on which the subsidiary company has paid the dividend distribution tax, as specified in section 115-O. State the provisions of the Income-tax Act, 1961 as to payment of dividend distribution tax and compute the amount of dividend distribution tax payable by the company on the basis of information and details given in para (5) supra.

Answer & Explanation:

Dividend Distribution tax Tax @ 15% is payable by a domestic company for any assessment year on the amount declared, distributed or paid by way of dividend whether out of current or accumulated profits. The amount shall be reduced by the amount of dividend if any received by the domestic company during the financial year from its subsidiary if the subsidiary has paid tax under section 115-O on such dividend so paid. The dividend paid is required to be grossed up with the income distributed for computing the tax liability on account of dividend distribution tax. With the grossing up, the effective tax rate on the amount of dividend distributed shall be: Effective rate of dividend distribution tax when surcharge and education cess is excluded then be 20.56% [17.647% (100 x 15/85) + 12% surcharge and 4% Health and Education Cess. Computation of Dividend Distribution Tax payable by Samode Group Hotels Ltd. (Dividend distribution tax when Surcharge and Health & Education Cess is excluded in gross-up rate) Particulars ₹ (lakhs) Dividend distributed 230 Less: Dividend received from subsidiary company (60) Net Distributed profits 170 Add: Increase for the purpose of grossing up of dividend (100 x 170/100 - 15) 30 Gross-up Dividend 200 Additional Income tax payable u/s 115-O (15% of ₹ 200 lakhs) 30.00 Add: Surcharge @ 12% 3.60 Tax excluding cess 33.60 Add: Health and Education cess @ 4% 1.344 DDT payable 34.944 Alternate Answer 1(c)(i) Dividend Distribution tax Tax @ 15% is payable by a domestic company for any assessment year on the amount declared, distributed or paid by way of dividend whether out of current or accumulated profits. The amount shall be reduced by the amount of dividend if any received by the domestic company during the financial year from its subsidiary if the subsidiary has paid tax under section 115-O on such dividend so paid. The dividend paid is required to be grossed up with the income distributed for computing the tax liability on account of dividend distribution tax. With the grossing up, the effective tax rate on the amount of dividend distributed shall be: Effective rate of dividend distribution tax when surcharge and Health & Education Cess is included then the rate would be 21.171% = (100 x 17.472/82.528). Computation of Dividend Distribution Tax payable by Samode Group Hotels Ltd. (Dividend distribution tax when Surcharge and Education Cess is included in gross-up rate) Particulars ₹ (lakhs) Dividend distributed 230 Less: Dividend received from subsidiary company (60) Net Distributed profits 170 Add: Increase for the purpose of grossing up of dividend (100 x 170/100 - 17.472) 36 Gross-up Dividend 206 Additional Income tax payable u/s 115-O (15% of ₹ 206 lakhs) 30.9 Add: Surcharge @ 12% 3.708 Tax excluding cess 34.608 Add: Health and Education cess @ 4% 1.38432 DDT payable 36.00

Topics: Dividend Distribution Tax (DDT)

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