Section 80M Income Tax Act: Deduction for Inter-Corporate Dividends
Section 80M of the Income-tax Act, 1961 provides relief from cascading taxation where a domestic company receives dividend income and, within the prescribed time, distributes dividend to its own shareholders. The deduction is limited to the lower of the qualifying dividend income received and the dividend distributed by the domestic company.
- Eligible taxpayer: A domestic company.
- Qualifying receipts: Dividend from another domestic company, a foreign company, or a business trust.
- Maximum deduction: Qualifying dividend income received, limited to the amount of dividend distributed by the recipient domestic company within the statutory time.
- No double deduction: The same distributed dividend cannot support a deduction again in another year.
What Section 80M provides
Section 80M was inserted by the Finance Act, 2020 with effect from 1 April 2021 as part of the shift away from the dividend distribution tax system. Its purpose is to reduce the cascading effect that can arise when dividend passes through one company before being distributed further to shareholders.
Under Section 80M(1), where the gross total income of a domestic company includes dividend income received from another domestic company, a foreign company, or a business trust, a deduction is available while computing the recipient company's total income. The deduction cannot exceed the amount of dividend distributed by that company on or before the statutory due date.
Meaning of the due date under Section 80M
For Section 80M, the expression "due date" means the date falling one month before the date for furnishing the return of income under Section 139(1) of the Income-tax Act, 1961. Therefore, the timing of the onward dividend distribution is important when determining the allowable deduction.
Conditions for claiming the deduction
- The claimant must be a domestic company.
- Its gross total income must include dividend income from another domestic company, a foreign company, or a business trust.
- The claimant company must distribute dividend to its shareholders on or before the due date specified for Section 80M.
- The deduction is restricted to the qualifying dividend income received or the dividend distributed, whichever is lower.
- An amount already considered for deduction under Section 80M in one previous year cannot be used again for a deduction in another previous year.
Section 80M(2): no repeat deduction
Sub-section (2) prevents duplication. If a deduction has already been allowed in respect of a particular amount of dividend distributed by the domestic company, that same amount cannot be used to claim another deduction in any other previous year.
Simple example
Example: Suppose a domestic company receives qualifying dividend income of Rs. 12 lakh and distributes Rs. 9 lakh as dividend within the time prescribed by Section 80M. Subject to the other provisions of the Act, the deduction is restricted to Rs. 9 lakh because the deduction cannot exceed the amount actually distributed within the prescribed time.
If the company instead distributes Rs. 15 lakh within time, the Section 80M deduction would be restricted to the qualifying dividend income of Rs. 12 lakh.
Section 80M and Section 148 of the Income-tax Act, 2025
| Point | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Inter-corporate dividend deduction | Section 80M | Section 148 |
| Recipient | Domestic company | Domestic company |
| Qualifying dividend sources | Domestic company, foreign company, or business trust | Domestic company, foreign company, or business trust |
| Distribution deadline | On or before the date one month prior to the Section 139(1) return due date | At least one month before the return due date under Section 263(1) |
For transactions and tax periods after the commencement of the Income-tax Act, 2025, readers should check Section 148 and the applicable provisions of the new Act rather than relying only on the numbering and terminology of the repealed 1961 Act.
Practical points for companies
- Identify dividend income included in gross total income and the entity from which it was received.
- Keep board resolutions, payment records, bank evidence, dividend registers, and other records supporting the onward distribution.
- Check the applicable return filing due date before fixing the dividend distribution timetable.
- Ensure that the same distributed amount is not used for a deduction in more than one year.
- For Tax Year 2026-27 onward, verify the claim under Section 148 of the Income-tax Act, 2025 and the applicable Income-tax Rules, 2026.
Official references
For current law and filing information, refer to the official Income Tax Department resources linked in the sidebar. Because tax law, forms, rules and due dates may change, the applicable provision should be checked for the relevant tax year before filing a return or taking a tax position.
This page is an explanatory legal and tax information article. It does not replace the text of the applicable Act, Rules, notifications, circulars, judicial decisions, or professional advice for a particular transaction.