Date:16/01/2006 URL: http://www.thehindubusinessline.com/bline/iw/2006/01/16/stories/2006011600901200.htm

Back Dividends exempt from tax

T. Banusekar

ARE all dividends exempt from tax? Is there any exception to the rule that dividends are exempt from tax?

Ramesh

Reply

Dividends are normally exempt from income tax. However, only dividends of the nature referred to in Section 115-O is exempt from tax in the hands of the recipient. Section 115-O does not include dividend from a foreign company and dividends of the nature referred to in Section 2(22)(e).

Hence, dividends which are of these character will not be exempt in the hands of the recipient. Section 2(22)(e) will apply only to a closely held company and where a loan advance is taken from such company by a shareholder holding 10 per cent or more of the voting power of the company or where such loan or advance is taken by a concern in which such person has a substantial interest. Substantial interest would mean holding 20 per cent or more of the voting power or 20 per cent or more of the share of profits of such concern.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

Ramesh