Companies troubled by the new income tax bill!
The new income tax bill is being praised everywhere, but this bill has increased the crisis of companies in a special sense. Under this, companies will have to bear the brunt of tax on inter-corporate dividends. Companies opting for 22 percent taxation will not get the option of tax exemption on dividends under the old law.
This means that a company receiving dividend from another company or trust will have to pay tax even after distributing the dividend among its shareholders. Earlier, the company opting for 22 percent taxation did not have to pay tax. This tax had to be paid only in the account of the shareholders getting the benefit of dividend.
How is the tax system on dividend in the current law?
Under Section 80M of the Finance Act 2020, a provision has been made to exempt inter-corporate dividends from taxation to avoid double taxation, so that both the company and the shareholders do not have to bear the burden of tax on the same dividend.
Understand it like this that if Company X has shares of Company Y, then any dividend paid by Company Y to Company X is considered an inter-corporate dividend. Such inter-corporate dividends received on or after april 1, 2020 were exempted from tax and deductions were allowed.
Domestic companies may be affected a lot
Experts believe that due to the denial of income tax exemption on inter-corporate dividends in companies opting for the 22 percent taxation slab in the new Income Tax Bill, domestic companies will be affected a lot. This could prove to be a problem, so it will need to be resolved before the bill becomes law. According to the new bill, even if Company X opts for the concessional corporate tax rate of 22 per cent, it will still have to pay tax on the Rs 100 dividend as the deduction will not be available. In addition, shareholders will also have to pay tax on the same Rs 100, leading to double taxation.
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