Post Budget 2016 Effective Corporate Taxation Rate @ 53.67% !!

Effective Collection of Taxes for a company @ 53.67% !!

W.e.f AY 2017-18 Exempted Dividends received by an Resident Individual, HUF in excess of 10 Lakhs from an Domestic Company will now be further taxed @ rate of 10% + Applicable Surcharge & Cess on the Gross Dividend received u/s115-BBDA, earlier any dividend received was exempted as the dividends have already suffered Dividend Distribution Tax (DDT) @ 15%+ Applicable Surcharge & Cess. The impact of the above amendment is explained in the below two illustrations

Illustration 1:-

ICCT20 Pvt Ltd earned Rs. 150 crores (PBT) and comprises of 2 Shareholders having 50% share Each, the impact of the above amendment is as follows:-

Particuars	Amount	Rate of Tax	Remarks
PBT	150.00
Less:Tax	51.91	34.61	{30+12% Surcharge+3% Cess}*150
PAT	98.09
DDT	16.97	17.30	{15+12% Surcharge+3% Cess}*98.09
Tax Paid by Shareholders	11.62	11.85	{10+15% Surcharge+3% Cess}*98.09
Total Tax Collected	80.50		{51.91+16.97+11.62}
In Terms of % to PBT	53.67%		{80/150}

Illustration 2:-The dividend received will be taxed on Gross Basis

MSD received Rs. 25 Lacs as exempted dividend and have incurred expenses to the tune of Rs.1.5 Lacs and had a b/f unabsorbed depreciation loss of 15 Lacs , then tax will be computed as follows:-

A) Dividend Received – 25 Lacs (Net)

B) Add: DDT Paid on above – 6.33 Lacs ( 25 *17.304/(100-17.304)

C) Gross Dividend – 31.33 Lacs

D) Tax @ 10 % on Gross Dividend – 3.133 Lacs + Applicable Surcharge and Cess

Note: As per S-115BBDA (2), in respect of dividends received taxed u/s 115BBDA(1) no deduction will be allowed for any set off loss or expenditure or allowance.

Takeaways:-

• Additional Tax on exempted dividend earned in excess of 10 lacs @ 10%
• Dividends taxable on Gross Basis and not on the actual dividend received
• No expenditure or losses or any allowance can be claimed against such dividend
• Applicable to only Resident Individuals / HUF/Firms
• Dividend received should have suffered DDT
• Dividend should be declared by a Domestic Company
• For computing 10 Lakhs received divided received from all the companies is to be considered
• Clarity is expected on the grossing up of dividends as for an individual identifying the rate of DDT will be a cumbersome process.