Dividend tax only on dividend income above Rs 10 lakh

The new 10 per cent Dividend Tax will be payable only on dividend income over and above Rs 10 lakh threshold in a year, according to an amendment to the Finance Bill 2016 approved by Lok Sabha.

Finance Minister Arun Jaitley had brought 21 amendments when he replied to the debate on Finance Bill 2016 in the Lok Sabha yesterday. The Bill and the amendments were approved, making the culmination of the three-stage budgetary process in Lok Sabha. The Bill will now go to Rajya Sabha.

One of them seeks to “clarify that tax shall be chargeable on dividend income only to the extent it is in excess of Rs 10 lakh in aggregate as received from a domestic company or companies,” the narration of the amendments released by the Finance Ministry here today said.

This essentially means, tax payers whose dividend income crosses Rs 10 lakh would now have to pay an additional dividend tax on the excess income besides the dividend distribution tax being paid by the company/companies declaring such dividends.

This amendment will be effective for the assessment year 2017-18 and subsequent assessment years.

One of the amendments was to put into effect the post Budget announcement of rollback of proposal to tax employee provident fund (EPF) withdrawals.

But the proposal of 40 per cent exemption given to National Pension Scheme (NPS) subscribers at the time of withdrawal will remain, it said.

Another amendment cut the duration for holding of shares in an unlisted company for being classified as long term capital asset. The duration of holding has been reduced from 36 months to 24 months.

Yet another amendment extended the benefit of weighted deduction of 150 per cent of expenditure incurred on notified agricultural extension projects till March 31, 2020 (FY2019-20 or Assessment Year 2020-21) instead of Budget proposal to restrict the deduction to 100 per cent from 2017-18 fiscal (Assessment Year 2018-19).

Another amendment included Limited Liability Partnership (LLP) in the definition of ‘start-up’ firms.

Jaitley had in his Budget provided exemption from payment of Securities Transaction Tax (STT) on transactions undertaken in foreign currency on a recognised stock exchange in International Financial Services Centre (IFSC) and extended the benefit of exemption for long term capital gains.

However, by implication, benefit of 15 per cent of tax on short term capital gain under section 111A may have been denied in case of such transactions owing to non-fulfilment of condition of payment of STT.

So, an amendment was brought “to provide that the concessional rate of 15 per cent on short term capital gain will be available in respect of the transactions which take place in foreign currency on a recognised stock exchange even if STT is not paid.”

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