• The Domestic Company shall, in addition to the income tax chargeable in respect of its total income, be liable to pay additional income tax on any amount declared, distributed or paid by such company by way of dividend (whether interim or otherwise), whether out of current or accumulated profits.

• Such dividend distribution tax shall be payable @ 15% plus surcharge @ 5% plus education cess @ 2% plus SHES @ 1% of amount so declared, distributed or paid.

• The amount referred to in Sec. 115-O(1) (as above) i.e. dividend to be distributed shall be reduced by

1. the amount of dividend, if any, received by the domestic company during the financial year, if—

1. such dividend is received from its subsidiary;

2. the subsidiary has paid tax under this section on such dividend; and

3. the domestic company is not a subsidiary of any other company.

However, that the same amount of dividend shall not be taken into account for reduction more than once.

2. the amount of dividend paid to any person for, or on behalf of, the New Pension System Trust established on the 27th day of February, 2008 under the provisions of the Indian Trusts Act, 1882.

• The expression ‘dividend’ shall have the same meaning as is given in clause (22) of Section 2, but shall not include sub-clause (e) of clause (22) of Section 2. Dividend u/s 2(22)(e) is not covered by this Chapter and the same shall be taxable in the hands of the shareholder and the company shall not pay tax on such dividend.

• Due Date :—
  
  The principal officer of the domestic company and the company shall be liable to pay the tax on the dividend distribution profit within 14 days from the date of declaration or distribution or payment of any dividend, whichever is earlier.

• The tax on the dividend distribution profit shall be payable whether or not the domestic company is liable to pay income tax on its total income computed in accordance with the provision of this Act.

• The tax on dividend distribution profit shall be treated as the final payment of the tax in respect of the amount declared, distributed or paid as dividends and no further credit shall be claimed by the company or by any other person in respect of the amount so paid.

• The company or the shareholder shall not be allowed any deduction in respect of the amount which has been charges to tax or the tax thereon under Sec. 115-O(1).
  
  The interpretation of this clause is that no deduction shall be allowed to the shareholder under any provision of the Income tax Act, 1961 in respect of any expenditure which he has incurred on collection or earning of the dividend (Sec. 14A). No deduction shall be allowed to the company under any provision of the Income tax Act, 1961 in respect of the dividend so paid or tax thereon.

• The distributed profit on which tax is paid u/s 115-O (1) shall be exempted in the hands of share holder u/s 10(34).

• The tax on distributed profits shall be payable by domestic company whether or not such profit is distributed out of current year profit or accumulated profit.

• Dividend received from a foreign company is not covered by Sec.115-O and shall not be exempted in the hands of shareholders u/s 10(34). Such dividend is taxable in the hands of shareholder at the normal tax rates.

• Dividend on both preference shares and equity shares shall be considered.

• Exemptions for Companies Developing, Operating or Maintaining SEZ (Sec. 115-O(6)

Section 115-Q :— CONSEQUENCEs FOR NON PAYMENT OF DIVIDEND DISTRIBUTION TAX

• If principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of Section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Income Tax Act, 1961 for the collection and recovery of income tax shall apply. The assessee who is deemed to be in default in making the payment of tax on distributed profits is liable for penalty u/s 221 of the Act.

Any amount of income distributed by (i) a specified company, or (ii) a mutual fund to is unit holders shall be chargeable to tax and such specified company or mutual fund shall be liable to pay additional income tax on such distributed income at the following rate:

Sr. No.	Particulars	Rate of tax
1	Income is distributed by a money market mutual fund or a liquid fund to-
	Individual or HUF	25% + 5% SC + 2% EC + 1% SHEC (w.e.f. 1-6-2011)
	Any person other than Individual or HUF	30% + 5% SC + 2% EC + 1% SHEC (w.e.f. 1-6-2011)
2	Income is distributed by a fund other than money market mutual fund or a liquid fund to-
	Individual or HUF	12.5% + 5% SC + 2% EC + 1% SHEC
	Any person other than Individual or HUF	30% + 5% SC + 2% EC + 1% SHEC (w.e.f. 1-6-2011)

• by the Administrator of specified undertaking, to the unit holders; or

• to a unit holder of an equity oriented fund in respect of any distribution made from such fund.

For the purpose of this clause "Administrator" means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and "specified company" means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.

The administrator of specified undertaking shall not be required to pay the tax on income distributed to the unit holders. Even the unit holders are also exempt from tax in respect of such incomes u/s 10(35).

• Due Date :—

• The Unit Trust of India or the Mutual Fund shall not be allowed any deduction in respect of the amount which has been charged to tax or the tax thereon u/s 115R(1) or u/s 115R(2).

• Unit holder shall not be liable to pay tax on income distributed on units by the specified company or a mutual fund or administrator by virtue of section 10(35).

• The specified company or a mutual fund will not be liable to pay the tax in respect of income distributed to a unit holder of equity oriented funds. Even the unit holder shall not be liable to pay tax on such income since it is exempted u/s 10(35) in hands of the unit holder.

• Tax is on distributed income i.e. amount of income distributed by mutual fund or the specified company. Therefore, redemption of units or repurchase of units is not covered by this chapter.

Section 115-S :— Interest payable for non-payment of tax

Where the person responsible for making payments of the income distributed by the specified company or a Mutual Fund and the specified company or a Mutual Fund, as the case may be, fails to pay the whole or any part of the tax as is referred to in sub-section (1) or sub-section (2) of section 115R, within the 14 days mention above, he or it shall be liable to pay simple interest at the rate of 1% for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.

Section 115-T :— CONSEQUENCEs FOR NON PAYMENT OF additional income tax on income distributed to unitholders

Where any person responsible for making payment of income distributed defaults to pay tax on distributed profits in accordance with the provisions sub-section (1) and sub-section (2) of Section 115-R, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of The Income Tax Act, 1961 as applicable for the collection and recovery of taxes thereon shall apply accordingly.