Understanding Dividend Income, Trade, Business, and Professions
Dividend income is a share of profits distributed by a company to its shareholders in the form of money, shares, debentures, or other securities. Dividends are subject to tax, with resident companies typically paying a 10% tax on gross dividends. Certain exemptions apply for specific entities and situations. The statement of particulars provides details on the composition of dividends received and tax deductions. The ascertainment of income from dividends varies based on the recipient (individual or company). Deemed dividends can arise from various accounting treatments related to distributable profits and asset valuations.
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Dividend Income & Trade business Profession or Vocation By : R. Anojah N.Kayathri S.Induja
Dividend Income 2
Dividend is a share of profits of the company paid to its shareholder in the form of: Money or an order to pay money or Shares in any other company or Debentures in that company or in any other company Scrip dividend or dividend in specie Buy back of shares The amount of capital returned / distributed after bonus issue 3
Dividends may not include: Bonus shares A payment of reduction in capital 4
Dividend Tax All resident company (other than unit trust or mutual fund ) are liable to pay dividend tax at the rate of 10% of Gross dividend distributed out of profits of any year. That dividend can t be in the form of shares and debentures. 5
Exemption of dividend Dividend paid to unit trust or mutual fund Dividend received on shares held abroad Dividend paid by a company out of exempt profits Dividend paid by a BOI company To any persons within the tax holiday period or + 1 year thereafter To a non- resident person 6
Statement of Particulars The Dividend warrant counterfoil included the following: The gross amount which after deductions of tax corresponds to the net amount actually paid. Tax deduction at source Net dividend paid The composition of the gross dividends such as dividend outs of dividend received, exempt income & other profits and income. 7
Ascertainment of income from dividend If received by person (individual) the tax is already been deducted If received by company the tax is final If any person received as a business receipt the tax deducted are entitled for tax credits 8
Deemed Dividend Tax Distributable Profits Book profit Less Assets required (cost) Tax liability Revaluation profit(gain) Add Depreciation charged Revaluation loss Distributable Profits xxxx xxxx (xxx) (xxx) (xxx) xxx xxx 9
Deemed Dividend Tax With effect from 01.04.2011 If Dividend paid = 10% of distributable profits No D.D.Tax If Dividend paid > 10% of distributable profits No D.D.Tax If Dividend paid < 10% of distributable profits Note 01 Note 01 Distributable profits * 1/3 xxx Dividend paid (xx) Excess xxx 10
Trade, Business, Profession or Vocation 11
Why trade is different from isolated transaction? Profit making motive Alteration of subject matter Nature of the assets The intension of acquisitions 12
How to ascertain profits and income Income Expense Exclude income from other sources Exclude exempt profits Deduct allowable expenses Add disallowable expenses 13
Computation of profits from Trade, Business ,Profession or Vocation Section 25 - deals with allowable expenditure Section 26 - deals with disallowable expenditure 14
Section 25 - Allowable Expenditure a)Expenses as well as outgoings are deductible. b)Expenses & outgoings can be claimed only if they are incurred. (Accrual basis) c)Expenses & outgoings should be deductible only if they are incurred in the production of income. 15
Bad debts Bad debts incurred Bad debts Trade debts Non trade debts Provisions Written off Specific General Not allowed Allowed Not allowed Allowed 16
Interest (Expenses) Interest paid on bank loan or an overdraft paid (production of income) On other operating assets On loans not utilized for business Allowed Disallowed Allowed 17
ETF / EPF Contribution If approved or regulated provident , pension or Savings fund are Allowed. (but maximum of 25% of total salary ) 18
Payment to Employees Lump sum payment in lieu of pension - Allowed Compensation for the loss of office Salaries and wages Payment for technical training of employees - Allowed - Allowed - Allowed 19
Retiring of Gratuity Gratuity Provision Paid Allowed Disallowed 20
Q & A 21
Thank you !! 22
