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Dividend Policy
When a company distributes its profits among shareholders(equity or preference) it is called distribution of dividend.
B) Any distribution by company of debentures, debenture stock, deposit certificates in any form, whether with or without interest to its shareholders, and -any distribution of bonus shares to its preference shareholders, -to the extent to which company possesses accumulated profits, whether capitalised or not[2(22)(b)]
C) Any distribution made to the shareholders on the liquidation of the company. Any distribution made by a company to its shareholders on its liquidation to the extent a company possessed accumulated profits before its liquidation shall amount to dividend. It is immaterial whether such accumulated profits are capitalised or not.[2(22)(c)]
D) Any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits whether capitalised or not.[2(22)(d)]
E) Any payment by a closely held company, of any sum , by may of advance or loan to -a shareholder who is the benificial owner of not less than 10% of shares carrying voting power, or -any concern in which the above shareholder is the member or a partner having substantial interest or -any person on behalf of or for the individual benefit of above shareholder. to the extent to which the company possesses accumulated profits.
Tax implications for company u/s 115-0 and u/s 194(if any).
Case 1:-If company distributing dividend is a domestic company 1) Payment of dividend tax[section 115-0(1)&(2)] 2) Treatment of dividend received by a domestic company from its subsidiary company. Dividend subject to dividend distribution tax =Dividend declared, distributed or paid
during financial year -Dividend received by domestic company from its subsidiary during the financial year
3) Responsibility to deposit tax [section 115-0 (3)] 4) Final payment{115-0 (4)} 5) No deduction[section 115-0 (5)] 6) Applicability of dividend distribution tax on SEZ developers[section115-0 (6) w.e.f. A.Y.2012-2013] 7) Interests payable for non-payment of tax by domestic companies[section 115P] 8) Assessee in default.
Case 2:- Distribution of dividend by a non domestic company 1) No application of section 115-0 :Not required to pay tax on distributed profits. 2) No liability of TDS : Not required to deduct any tax at source before paying dividends.
Case 2:- In distributed, declared or paid by non domestic company Any dividend received from non domestic company shall be fully taxable in the hands shareholders and shall be treated as his income other sources. A foreign company is not required to deduct tax at source u/s194 in respect of dividend distributed by it.