Dividend Income & Trade business Profession or Vocation By : R. Anojah N.Kayathri S.Induja
3
Dividend is a share of profits of the company paid to its shareholder in the form of:
• Money or an order to pay money or• Shares in any other company or• Debentures in that company or in any other
company• Scrip dividend or dividend in specie• Buy back of shares • The amount of capital returned / distributed after
bonus issue
5
Dividend Tax
All resident company (other than unit trust or mutual fund ) are liable to pay dividend tax at the rate of 10% of Gross dividend distributed out of profits of any year.
That dividend can’t be in the form of shares and debentures.
6
Exemption of dividend
Dividend paid to unit trust or mutual fund
Dividend received on shares held abroad
Dividend paid by a company out of exempt profits
Dividend paid by a BOI company To any persons within the tax
holiday period or + 1 year thereafter
To a non- resident person
7
Statement of ParticularsThe Dividend warrant counterfoil included
the following:The gross amount which after
deductions of tax corresponds to the net amount actually paid.
Tax deduction at sourceNet dividend paidThe composition of the gross dividends
such as dividend outs of dividend received, exempt income & other profits and income.
8
Ascertainment of income from dividend
the tax deducted are entitled for tax credits
If received by person (individual)
the tax is already been deducted
If received by company the tax is final
If any person received as a business receipt
9
Deemed Dividend Tax Distributable Profits
Book profit xxxx
Less
Assets required (cost)
(xxx)
Tax liability (xxx)
Revaluation profit(gain)
(xxx)
Add
Depreciation charged
xxx
Revaluation loss xxx
Distributable Profits
xxxx
10
Deemed Dividend Tax
With effect from 01.04.2011
Note 01
Distributable profits * 1/3
xxx
Dividend paid (xx)
Excess xxx
If Dividend paid = 10% of distributable profits
No D.D.Tax
If Dividend paid > 10% of distributable profits
No D.D.Tax
If Dividend paid < 10% of distributable profits
Note 01
12
Why trade is different from isolated transaction?
• Profit making motive
• Alteration of subject matter
• Nature of the assets
• The intension of acquisitions
13
How to ascertain profits and income
Income Expense • Exclude
income from other sources
• Deduct allowable expenses
• Exclude exempt profits
• Add disallowable expenses
14
Computation of profits from Trade, Business ,Profession or Vocation
• Section 25 - deals with allowable expenditure
• Section 26 - deals with disallowable expenditure
15
Section 25 - Allowable Expenditure
a)Expenses as well as outgoings are deductible.
b)Expenses & outgoings can be claimed only if they are incurred. (Accrual basis)
c)Expenses & outgoings should be deductible only if they are incurred in the production of income.
16
Bad debts
• Bad debts incurred Bad debts
Trade debts Non trade debts
Provisions
Written off
Specific General
Allowed Not allowedAllowed
Not allowed
17
on bank loan or an overdraft paid (production of income)
Interest (Expenses)
Interest paid
On other operating assets
On loans not utilized for business
Allowed
Allowed Disallowed
18
ETF / EPF Contribution
• If approved or regulated provident , pension or Savings fund are Allowed.
(but maximum of 25% of total salary )
19
Payment to Employees
• Lump sum payment in lieu of pension
- Allowed
• Compensation for the loss of office
- Allowed
• Salaries and wages - Allowed
• Payment for technical training of employees
- Allowed