Section 115BBDA of the Income Tax Act: An Overview
Section 115BBDA of the Income Tax Act, 1961 is a provision that was introduced in the Finance Act, 2016. This section pertains to the taxation of certain types of income, namely, income in the form of dividends, that are received by a resident individual or a Hindu Undivided Family (HUF). This blog post will provide an overview of Section 115BBDA and its various provisions.
Applicability of Section 115BBDA
Section 115BBDA applies to resident individuals and HUFs who receive dividend income exceeding Rs. 10 lakh in a financial year. The section is not applicable to non-residents and domestic companies.
Rate of Taxation under Section 115BBDA
As per Section 115BBDA, any dividend income in excess of Rs. 10 lakh received by a resident individual or HUF is subject to a flat tax rate of 10%. This is in addition to the regular tax liability of the taxpayer. The tax is payable on the gross amount of dividend income, which means that no deduction or exemption can be claimed against the dividend income.
Example: If a resident individual receives a dividend income of Rs. 12 lakh in a financial year, he will be liable to pay tax under Section 115BBDA on the amount exceeding Rs. 10 lakh, i.e., on Rs. 2 lakh. The tax liability in this case would be Rs. 20,000 (10% of Rs. 2 lakh).
Exemptions and Deductions under Section 115BBDA
Section 115BBDA does not provide for any exemptions or deductions against the dividend income. However, it is important to note that the taxpayer can still claim deductions under other provisions of the Income Tax Act, such as Section 80C, Section 80D, etc., against his taxable income, including the dividend income.
Disclosure Requirements under Section 115BBDA
Taxpayers who are liable to pay tax under Section 115BBDA are required to disclose the amount of dividend income exceeding Rs. 10 lakh in their income tax return (ITR). The disclosure should be made in the relevant section of the ITR form.
Non-Applicability of Section 115BBDA in Certain Cases
Section 115BBDA is not applicable in certain cases. These include:
- Dividend income received by a domestic company or a mutual fund.
- Dividend income received by a non-resident.
- Dividend income received from a venture capital company or a venture capital fund.
- Dividend income received from units of a business trust.
Additional Details on Section 115BBDA of the Income Tax Act
Section 115BBDA was introduced in the Income Tax Act, 1961 to tax high-value dividend income received by resident individuals and HUFs. The introduction of this section was aimed at bringing parity between the taxation of dividend income received by individuals and HUFs and the taxation of dividend income received by domestic companies.
The flat tax rate of 10% on dividend income exceeding Rs. 10 lakh is applicable from the financial year 2016-17 onwards. This means that if a resident individual or HUF received dividend income exceeding Rs. 10 lakh in any financial year from 2016-17 onwards, they would be liable to pay tax under Section 115BBDA.
The tax liability under Section 115BBDA is over and above the regular tax liability of the taxpayer. This means that the taxpayer would have to pay tax at their applicable slab rate on their total income, including the dividend income, and 10% on the dividend income exceeding Rs. 10 lakh.
It is important to note that Section 115BBDA does not apply to dividend income received from a foreign company or a foreign mutual fund. In such cases, the tax liability would be as per the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.
Taxpayers who are liable to pay tax under Section 115BBDA should ensure that they disclose the amount of dividend income exceeding Rs. 10 lakh in their ITR. Failure to disclose such income could attract penalties and prosecution under the Income Tax Act.
Implications of Section 115BBDA
The introduction of Section 115BBDA has significant implications for taxpayers who receive high-value dividend income. The flat tax rate of 10% on dividend income exceeding Rs. 10 lakh could result in a substantial tax liability for taxpayers, especially those who receive large amounts of dividend income.
The taxation of dividend income under Section 115BBDA has also resulted in a change in the investment strategies of taxpayers. Previously, taxpayers used to invest in dividend-paying stocks to receive tax-free income. However, with the introduction of Section 115BBDA, the tax liability on dividend income has increased, and taxpayers are now focusing on capital appreciation rather than dividend income.
Another important implication of Section 115BBDA is the impact on the taxation of mutual funds. Mutual funds are an attractive investment option for taxpayers as they offer a diversified portfolio and professional management. However, the introduction of Section 115BBDA has made mutual fund investments less attractive for taxpayers who receive high-value dividend income. This is because the tax liability on dividend income from mutual funds exceeding Rs. 10 lakh is subject to the flat tax rate of 10%.
Section 115BBDA has also resulted in increased compliance requirements for taxpayers. Taxpayers who receive high-value dividend income are now required to disclose such income in their ITR and pay tax on the same. Failure to comply with the provisions of Section 115BBDA could attract penalties and prosecution under the Income Tax Act.
Conclusion
Section 115BBDA is a provision that applies to resident individuals and HUFs who receive dividend income exceeding Rs. 10 lakh in a financial year. The provision imposes a flat tax rate of 10% on the dividend income exceeding Rs. 10 lakh. Taxpayers who are liable to pay tax under Section 115BBDA are required to disclose the amount of dividend income exceeding Rs. 10 lakh in their ITR.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
What is Section 115BBDA of the Income Tax Act, 1961?
Section 115BBDA is a provision that imposes a flat tax rate of 10% on dividend income exceeding Rs. 10 lakh received by resident individuals and HUFs.
Who is liable to pay tax under Section 115BBDA?
Taxpayers who receive dividend income exceeding Rs. 10 lakh in any financial year are liable to pay tax under Section 115BBDA.
When was Section 115BBDA introduced?
Section 115BBDA was introduced in the Income Tax Act, 1961 from the financial year 2016-17 onwards.
Is the tax liability under Section 115BBDA in addition to the regular tax liability of the taxpayer?
Yes, the tax liability under Section 115BBDA is over and above the regular tax liability of the taxpayer.
Does Section 115BBDA apply to dividend income received from a foreign company or a foreign mutual fund?
No, Section 115BBDA does not apply to dividend income received from a foreign company or a foreign mutual fund.
What is the rate of tax under Section 115BBDA?
The rate of tax under Section 115BBDA is a flat 10% on dividend income exceeding Rs. 10 lakh.
What is the implication of Section 115BBDA on mutual fund investments?
The introduction of Section 115BBDA has made mutual fund investments less attractive for taxpayers who receive high-value dividend income as the tax liability on dividend income from mutual funds exceeding Rs. 10 lakh is subject to the flat tax rate of 10%.
Are taxpayers required to disclose dividend income exceeding Rs. 10 lakh in their ITR?
Yes, taxpayers who receive dividend income exceeding Rs. 10 lakh are required to disclose such income in their ITR.
What is the penalty for non-compliance with the provisions of Section 115BBDA?
Failure to comply with the provisions of Section 115BBDA could attract penalties and prosecution under the Income Tax Act.
Can taxpayers claim any deductions or exemptions under Section 115BBDA?
No, taxpayers cannot claim any deductions or exemptions under Section 115BBDA. The flat tax rate of 10% is applicable on dividend income exceeding Rs. 10 lakh without any deductions or exemptions.
