Dividend tax only on dividend income above Rs 10 lakh

New Delhi: The new 10 percent Dividend Tax will be payable only on dividend income over and above Rs 10 lakh threshold in a year, according to an amendment to the Finance Bill 2016 approved by Lok Sabha.

Finance Minister Arun Jaitley had brought 21 amendments when he replied to the debate on Finance Bill 2016 in the Lok Sabha yesterday. The Bill and the amendments were approved, making the culmination of the three-stage budgetary process in Lok Sabha. The Bill will now go to Rajya Sabha.

One of them seeks to "clarify that tax shall be chargeable on dividend income only to the extent it is in excess of Rs 10 lakh in aggregate as received from a domestic company or companies," the narration of the amendments released by the Finance Ministry here Friday said.

This essentially means, tax payers whose dividend income crosses Rs 10 lakh would now have to pay an additional dividend tax on the excess income besides the dividend distribution tax being paid by the company/companies declaring such dividends.

This amendment will be effective for the assessment year 2017-18 and subsequent assessment years.

One of the amendments was to put into effect the post Budget announcement of rollback of proposal to tax employee provident fund (EPF) withdrawals.

But the proposal of 40 percent exemption given to National Pension Scheme (NPS) subscribers at the time of withdrawal will remain, it said.

Another amendment cut the duration for holding of shares in an unlisted company for being classified as long term capital asset. The duration of holding has been reduced from 36 months to 24 months.

Yet another amendment extended the benefit of weighted deduction of 150 percent of expenditure incurred on notified agricultural extension projects till March 31, 2020 (FY2019-20 or Assessment Year 2020-21) instead of Budget proposal to restrict the deduction to 100 per cent from 2017-18 fiscal (Assessment Year 2018-19).

Another amendment included Limited Liability Partnership (LLP) in the definition of 'start-up' firms.

Jaitley had in his Budget provided exemption from payment of Securities Transaction Tax (STT) on transactions undertaken in foreign currency on a recognised stock exchange in International Financial Services Centre (IFSC) and extended the benefit of exemption for long term capital gains.

However, by implication, benefit of 15 percent of tax on short term capital gain under section 111A may have been denied in case of such transactions owing to non-fulfilment of condition of payment of STT.

So, an amendment was brought "to provide that the concessional rate of 15 percent on short term capital gain will be available in respect of the transactions which take place in foreign currency on a recognised stock exchange even if STT is not paid."

Another amendment was to effect the rollback of monetary limit of Rs 1.5 lakh per annum provided for contribution by the employer in recognised Provident Fund for the purpose of tax benefit to the employee.

To provide relief to newly setup domestic manufacturing companies, the Budget for 2016-17 provided for an option at the hands of companies to pay tax at 25 percent if it does not claim any exemption.

An amendment brought by Jaitley to this clarified that to avail of the benefit "the company should not be engaged in any business other than that of manufacture or production of any article or thing and the associated activities in the nature of research in relation to, or distribution of, any article or thing manufactured or produced by it."

Also, the option is to be exercised by the company on or before the due date of filing of first return of income. "The option once exercised cannot be changed in any subsequent year," the amendment said.

Another amendment provided for a person availing of 10 percent flat tax on gross basis on income derived from royalty on patent developed and registered in India, will remain in the regime for five years.

"If the assessee opts out of the scheme before the expiry of the period of five years, he shall not be eligible to take the benefit of the provisions for a period of five subsequent years," it said.

It also provided that 75 percent of the total expenses incurred for developing patent shall be incurred by the resident himself in India.

While the Finance Bill 2016 provided concessional 9 percent MAT in case of units located in IFSC and incorporated on or after April 1, 2016, an amendment deleted the condition of being set up on or after April 1, 2016.

Another amendment provided that the processing of return shall not be necessary before expiry of the period provided for processing of return where a notice has been issued to the assessee. However, such return shall be processed before the issuance of the assessment order.

While the Budget provided for deduction of 10 percent tax by Category - I & II Alternate Investment Fund (AIFs) on payments made to a resident investor and at the "rates in force" where the payee is a non-resident, an amendment provided for no deduction in case of a non-resident.

In order to bring high value transactions within the tax net, the Finance Bill, 2016 made it mandatory for seller to collect one per cent tax from the purchaser on sale of motor vehicle of the value exceeding Rs ten lakh.

One of the amendments clarified that retail sale of motor vehicle of over Rs 10 lakh is also liable to tax collected at source or TCS.

Yet another amendment extended the immunity in case assessee pays tax on under-reported income and does not file any appeal against the assessment order, to include exemption from initiation of proceedings. Earlier immunity was granted from levy of penalty for under reported income and prosecution. PTI JD ANZ Another amendment was to effect the rollback of monetary

limit of Rs 1.5 lakh per annum provided for contribution by the employer in recognised Provident Fund for the purpose of tax benefit to the employee.

To provide relief to newly setup domestic manufacturing companies, the Budget for 2016-17 provided for an option at the hands of companies to pay tax at 25 percent if it does not claim any exemption.

An amendment brought by Jaitley to this clarified that to avail of the benefit "the company should not be engaged in any business other than that of manufacture or production of any article or thing and the associated activities in the nature of research in relation to, or distribution of, any article or thing manufactured or produced by it."

Also, the option is to be exercised by the company on or before the due date of filing of first return of income. "The option once exercised cannot be changed in any subsequent year," the amendment said.

Another amendment provided for a person availing of 10 percent flat tax on gross basis on income derived from royalty on patent developed and registered in India, will remain in the regime for five years.

"If the assessee opts out of the scheme before the expiry of the period of five years, he shall not be eligible to take the benefit of the provisions for a period of five subsequent years," it said.

It also provided that 75 percent of the total expenses incurred for developing patent shall be incurred by the resident himself in India.

While the Finance Bill 2016 provided concessional 9 percent MAT in case of units located in IFSC and incorporated on or after April 1, 2016, an amendment deleted the condition of being set up on or after April 1, 2016.

Another amendment provided that the processing of return shall not be necessary before expiry of the period provided for processing of return where a notice has been issued to the assessee. However, such return shall be processed before the issuance of the assessment order.

While the Budget provided for deduction of 10 percent tax by Category - I & II Alternate Investment Fund (AIFs) on payments made to a resident investor and at the "rates in force" where the payee is a non-resident, an amendment provided for no deduction in case of a non-resident.

In order to bring high value transactions within the tax net, the Finance Bill, 2016 made it mandatory for seller to collect one per cent tax from the purchaser on sale of motor vehicle of the value exceeding Rs ten lakh.

One of the amendments clarified that retail sale of motor vehicle of over Rs 10 lakh is also liable to tax collected at source or TCS.

Yet another amendment extended the immunity in case assessee pays tax on under-reported income and does not file any appeal against the assessment order, to include exemption from initiation of proceedings. Earlier immunity was granted from levy of penalty for under reported income and prosecution.