Page 217 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes Section 115-T: Consequences for Non-payment of Additional Income Tax on
Income Distributed to Unit Holders

Where any person responsible for making payment of income distributed defaults to pay tax
on distributed profits in accordance with the provisions sub-section (1) and sub-section (2) of

Section 115-R, then, he or it shall be deemed to be an assessee in default in respect of the amount
of tax payable by him or it and all the provisions of the Income Tax Act, 1961 as applicable for the
collection and recovery of taxes thereon shall apply accordingly.

Did u know? In India, domestic companies that declare, distribute or pay dividends are
subject to dividend distribution tax at 16.61% on the amount of such dividends. However,
income distributed by a specifi ed company or mutual fund is taxable at differential rates
as follows:
Income distributed from the Money market/liquid funds is taxable at 27.68% Income distributed
from other mutual funds to individuals or HUFs is taxable at 13.84% and to others at 22.15%.
However, no additional tax is payable on income distributed to unit holders of equity oriented
funds.

Self Assessment

Fill in the blanks:
13. Dividend distribution tax is the tax levied by the …………… on companies according to
the dividend paid to a company’s investors.
14. Every domestic company is liable to pay Dividend Distribution Tax at the rate
............................ on the amount declared.
15. The amount of dividend paid to any person for, or on behalf of, the New Pension
System Trust established on the 27th day of February, 2008 under the provisions of the
………………..
16. No tax on distributed profits shall be chargeable in respect of the total income of an

undertaking or enterprise engaged in developing or developing and operating or
developing, operating and maintaining a ..................................
17. The …………….. shall not be allowed any deduction in respect of the amount which has
been charged to tax or the tax thereon under section 115R(1) or under section 115R(2).

9.4 Issue of Bonus Shares

The perception of a stock is dependent upon the expected price movement of the stock and
the company’s dividend payout policies, which can be in the form of cash dividends or stock
dividends, commonly known as bonus issues. A company’s ability and willingness to pay steady
dividends over time and its power to increase them reinstate investors’ faith in the stock.
Many a time, a company is not in a position to pay cash dividends, in spite of suffi cient profi ts.
In such a case, a bonus issue of shares is a powerful alternative. A bonus issue is also perceived
by investors to be a strong signal by the company’s management of its readiness to service an
enhanced shareholder base.
Thus when the additional shares are allotted to the existing shareholders without receiving any
additional payment from them, it is known as issue of bonus shares. Bonus shares are allotted
by capitalising the reserves and surplus. Issue of bonus shares results in the conversion of

the company’s profits into share capital. Therefore it is termed as capitalisation of company’s
profi ts.

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