Section 10(34) of the Income Tax Act, 1961 deals with the exemption of income earned by a shareholder from a specified investment. This provision was introduced to encourage investment in specified instruments and to ensure that shareholders are not taxed twice on the same income. In this blog, we will discuss Section 10(34) of the Income Tax Act in detail, including its scope, applicability, and benefits.
Understanding Section 10(34) of the Income Tax Act:
Section 10(34) of the Income Tax Act states that any income earned by a shareholder from a specified investment is exempt from tax. The term ‘specified investment’ refers to any dividend received by a shareholder from a domestic company or a mutual fund.
Scope of Section 10(34):
Section 10(34) applies to all shareholders of a domestic company or a mutual fund. The exemption is available only on the dividend income received by the shareholders, and not on any other income earned from the investment.
Applicability of Section 10(34):
The exemption under Section 10(34) is available to all taxpayers, including individuals, Hindu Undivided Families (HUFs), and companies. The dividend income received by the shareholder should be from a domestic company or a mutual fund registered in India.
Benefits of Section 10(34):
The exemption under Section 10(34) ensures that the shareholders are not taxed twice on the same income. It also encourages investment in domestic companies and mutual funds, which helps to boost the economy. Additionally, the exemption of dividend income reduces the tax burden on the shareholders, resulting in higher returns on investment.
Other Considerations:
It is important to note that the exemption under Section 10(34) is not available for any dividend income earned from a foreign company or a foreign mutual fund. Also, the shareholder must disclose the dividend income received from domestic companies or mutual funds while filing their income tax returns.
Conditions for claiming exemption under Section 10(34):
To claim exemption under Section 10(34), the following conditions must be met:
- The dividend income must be received from a domestic company or a mutual fund registered in India.
- The dividend income must be included in the total income of the shareholder.
- The shareholder must disclose the dividend income while filing their income tax returns.
- The dividend income must not be earned from a foreign company or a foreign mutual fund.
Calculation of taxable income:
After claiming exemption under Section 10(34), the taxable income of the shareholder is reduced by the amount of dividend income received from a domestic company or a mutual fund. This reduces the tax liability of the shareholder and results in higher returns on investment.
Impact of Budget changes on Section 10(34):
In the Union Budget 2021, the government proposed to tax dividend income in the hands of the shareholders instead of taxing it at the hands of the company or mutual fund. This means that dividend income will be added to the total income of the shareholder and taxed as per the applicable slab rates. However, the exemption under Section 10(34) will continue to be available to the shareholders.
Importance of seeking professional advice:
While Section 10(34) provides an exemption to shareholders from the tax liability on dividend income, it is important to seek professional advice to ensure compliance with all the applicable laws and regulations. Taxation laws can be complex and confusing, and seeking professional advice can help taxpayers to optimize their tax liability and avoid any penalties or legal issues.
Conclusion:
In conclusion, Section 10(34) of the Income Tax Act provides an exemption to shareholders from the tax liability on dividend income received from a domestic company or a mutual fund. The exemption helps to encourage investment and reduces the tax burden on the shareholders, resulting in higher returns on investment. However, taxpayers must ensure compliance with all the applicable laws and regulations and seek professional advice to optimize their tax liability.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 10(34) of the Income Tax Act, 1961?
Section 10(34) of the Income Tax Act provides an exemption to shareholders from the tax liability on dividend income received from a domestic company or a mutual fund.
Who is eligible for the exemption under Section 10(34)?
All taxpayers, including individuals, HUFs, and companies, who receive dividend income from a domestic company or a mutual fund registered in India, are eligible for the exemption under Section 10(34).
What is the scope of Section 10(34)?
Section 10(34) applies to the dividend income received by the shareholders from a domestic company or a mutual fund. It does not apply to any other income earned from the investment.
Is the exemption under Section 10(34) available for dividend income received from a foreign company or a foreign mutual fund?
No, the exemption under Section 10(34) is not available for any dividend income earned from a foreign company or a foreign mutual fund.
What are the conditions for claiming exemption under Section 10(34)?
To claim exemption under Section 10(34), the dividend income must be received from a domestic company or a mutual fund registered in India, included in the total income of the shareholder, disclosed while filing income tax returns, and not earned from a foreign company or a foreign mutual fund.
How does the exemption under Section 10(34) impact the taxable income of the shareholder?
After claiming exemption under Section 10(34), the taxable income of the shareholder is reduced by the amount of dividend income received from a domestic company or a mutual fund, resulting in a lower tax liability.
Are there any changes to Section 10(34) in the Union Budget 2021?
In the Union Budget 2021, the government proposed to tax dividend income in the hands of the shareholders instead of taxing it at the hands of the company or mutual fund. However, the exemption under Section 10(34) will continue to be available to the shareholders.
Can a shareholder claim exemption under Section 10(34) for dividend income received from a foreign company or a foreign mutual fund if they are an Indian resident?
No, the exemption under Section 10(34) is not available for any dividend income earned from a foreign company or a foreign mutual fund, even if the shareholder is an Indian resident.
What is the importance of seeking professional advice while claiming exemption under Section 10(34)?
While Section 10(34) provides an exemption to shareholders from the tax liability on dividend income, seeking professional advice can help taxpayers to optimize their tax liability and ensure compliance with all the applicable laws and regulations.
Is there a limit to the amount of dividend income that can be exempted under Section 10(34)?
No, there is no limit to the amount of dividend income that can be exempted under Section 10(34). However, the dividend income must be from a domestic company or a mutual fund registered in India, and the shareholder must meet all the applicable conditions.
