Section 115BBDA of Income Tax Act - Tax on Certain Dividends from Domestic Companies
Section 115BBDA is a special-rate provision dealing with certain high-value dividends received by a specified assessee resident in India from domestic companies. Its practical application is now historical because the provision is restricted to qualifying dividends declared, distributed or paid on or before 31 March 2020.
Section 115BBDA at a glance
| Subject | Tax on certain dividends received from domestic companies |
|---|---|
| Eligible taxpayer | A specified assessee who is resident in India, subject to the exclusions stated in the section |
| Threshold | Aggregate qualifying dividend income exceeding Rs. 10 lakh |
| Special tax rate | 10 percent on the qualifying dividend income exceeding Rs. 10 lakh |
| Relevant dividend period | Dividend declared, distributed or paid by a domestic company or companies on or before 31 March 2020 |
| Deductions and losses | No deduction for expenditure or allowance and no set-off of loss is allowed in computing the dividend income covered by clause (a) of sub-section (1) |
Meaning and scope of Section 115BBDA
Section 115BBDA begins with a non-obstante clause. In substance, where the total income of a specified assessee resident in India includes aggregate dividend income exceeding Rs. 10 lakh from a domestic company or domestic companies, and the dividend was declared, distributed or paid on or before 31 March 2020, the section prescribes a special method for computing income tax.
The tax payable is the aggregate of the special tax on the covered dividend income above the threshold and the tax otherwise payable on the balance of total income.
How the special tax was calculated
Step 1: Identify the aggregate dividend income falling within Section 115BBDA.
Step 2: Reduce the Rs. 10 lakh threshold from that aggregate qualifying dividend income.
Step 3: Calculate tax at 10 percent on the qualifying dividend income exceeding Rs. 10 lakh.
Step 4: Add the tax that would otherwise be chargeable on total income after reducing it by the dividend income covered by the special-rate component.
This description concerns the statutory special rate under Section 115BBDA. Applicable surcharge, cess and other provisions for the relevant assessment year have to be considered separately where relevant.
No deduction or set-off against covered dividend income
Under sub-section (2), while computing the dividend income referred to in clause (a) of sub-section (1), no deduction is allowed for expenditure or allowance and no set-off of loss is permitted under any provision of the Act. This restriction applies to the computation of dividend income subjected to the special treatment under Section 115BBDA.
Definition of dividend for Section 115BBDA
For this section, the expression dividend takes its meaning from Section 2(22) of the Income Tax Act, but excludes the category referred to in Section 2(22)(e). Section 2(22) contains the statutory extended meaning of dividend for income-tax purposes.
Who is a specified assessee?
For Section 115BBDA, a specified assessee is a person other than the excluded categories stated in the Explanation. The exclusions include:
- a domestic company;
- specified funds, institutions, trusts, universities, educational institutions, hospitals and medical institutions covered by the relevant clauses of Section 10(23C); and
- a trust or institution registered under the provisions referred to in the section, including Sections 12A, 12AA or 12AB as applicable to the statutory text.
Finance Act 2020 change and present position
The Finance Act, 2020 changed the taxation of dividends by removing the former dividend distribution tax framework and moving generally to taxation in the hands of shareholders. As part of that change, Section 115BBDA was amended so that its special levy applies only to dividends declared, distributed or paid by a domestic company or companies on or before 31 March 2020.
Accordingly, the section remains important for understanding and dealing with relevant earlier-year matters, assessments, appeals, rectification issues and litigation, but it should not be applied to post-31 March 2020 dividends merely because the dividend amount exceeds Rs. 10 lakh.
Related provisions
Readers examining dividend taxation may also refer to Section 115-O on the former tax on distributed profits of domestic companies, Section 115A concerning specified income of non-residents and foreign companies, and Section 115BBD concerning certain dividends received from foreign companies. The distinction is important: Section 115BBDA concerns certain dividends from domestic companies, whereas Section 115BBD dealt with specified dividends from foreign companies.
Practical takeaway
Section 115BBDA imposed a 10 percent special tax on the portion of aggregate qualifying dividend income exceeding Rs. 10 lakh in the hands of a specified resident assessee, subject to its statutory exclusions and computation rules. Following the Finance Act, 2020 amendment, the section is confined to dividends declared, distributed or paid by domestic companies on or before 31 March 2020.
Note: Tax treatment can depend on the relevant previous year, assessment year, taxpayer status and later amendments. For a live tax matter, the law applicable to the relevant year should be checked.