My holding company received dividend from its subsidiary and then paid dividend out to its own shareholders. Can I set off the subsidiary's dividend before computing DDT, and what do I have to prove?
Yes, but only on conditions. Section 115-O(1A) reduces the amount charged under sub-section (1) by the dividend received by the domestic company during the financial year from its subsidiary, provided that where the subsidiary is a domestic company the subsidiary has paid the tax payable under s.115-O on that dividend, and where the subsidiary is a foreign company the tax is payable by the domestic company under s.115BBD on it; a proviso forbids the same amount of dividend being taken into account for reduction more than once, and the Explanation defines a subsidiary as a company more than half of whose equity share capital in nominal value is held by the other company.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 115-O(1A) of the Income-tax Act, 1961, as amended up to 2026. It bears on section 115-O(1A), section 115-O, section 115-O(1B), section 115BBD, section 10(44) of the Income Tax Act 1961, in How Tax Law Is Read and Deductions & Disallowances matters.
This is the anti-cascading relief in the DDT regime and it is the item most often disallowed on a technicality. Four conditions have to be met and each is a separate point of failure. (1) The dividend must be received 'during the financial year' — the same financial year in which the parent's own distribution falls, on the words of the clause. (2) Where the subsidiary is domestic, the reduction is conditional on the subsidiary having 'paid the tax which is payable under this section on such dividend' — actual payment by the subsidiary, not merely a liability, and not merely the parent's belief that it was paid. (3) Where the subsidiary is foreign, the gate is different: the tax must be payable by the domestic company under s.115BBD on that dividend, so the concessional foreign-dividend regime and the DDT set-off are linked. (4) The holding must satisfy the Explanation — more than half in nominal value of the equity share capital. Fifty per cent exactly is not 'more than half', and a holding measured by voting power or by paid-up value rather than nominal value of equity is not what the Explanation asks for. The proviso against double counting matters in a three-tier group: a dividend that has already been used to reduce the charge at one level cannot be used again at another. And clause (ii) adds a separate, unconditional reduction for dividend paid to any person for, or on behalf of, the New Pension System Trust referred to in s.10(44) — that one has no subsidiary test and no payment-of-tax test attached to it. Finally, the set-off feeds the grossing-up. Sub-section (1B) grosses up 'the amount by way of dividends referred to in sub-section (1) as reduced by the amount referred to in sub-section (1A)', so the sub-section (1A) reduction is taken first and the grossed-up figure is computed on the net. Taking the set-off after grossing up overstates the tax.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Sub-section (1A) provides that the amount referred to in sub-section (1) shall be reduced by (i) the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and (a) where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend, or (b) where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend, with a proviso that the same amount of dividend shall not be taken into account for reduction more than once; and (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. The Explanation provides that a company shall be a subsidiary of another company if such other company holds more than half in nominal value of the equity share capital of the company.
The set-off is available only where the dividend was received from a subsidiary as defined in the Explanation, in the same financial year, and the tax condition in clause (i)(a) or (i)(b) is satisfied; the same dividend cannot be used twice; and the reduction is taken before the s.115-O(1B) grossing-up.
This is statutory text, not a decision. The conditional structure is decisive: the words 'if such dividend is received from its subsidiary and' are followed by two alternative conditions, so the reduction is not available on the mere fact of receipt. The Explanation supplies its own definition of subsidiary for this sub-section alone, and the proviso is an express bar on double counting. The order of operations comes from sub-section (1B), which computes on the sub-section (1) amount 'as reduced by the amount referred to in sub-section (1A)'.
Provided that the same amount of dividend shall not be taken into account for reduction more than once;
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Handle my notice → Ask a CA on WhatsAppYes, but only on conditions. Section 115-O(1A) reduces the amount charged under sub-section (1) by the dividend received by the domestic company during the financial year from its subsidiary, provided that where the subsidiary is a domestic company the subsidiary has paid the tax payable under s.115-O on that dividend, and where the subsidiary is a foreign company the tax is payable by the domestic company under s.115BBD on it; a proviso forbids the same amount of dividend being taken into account for reduction more than once, and the Explanation defines a subsidiary as a company more than half of whose equity share capital in nominal value is held by the other company. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115-O(1A), section 115-O, section 115-O(1B), section 115BBD, section 10(44) of the Income Tax Act 1961. It is reported as Section 115-O(1A) of the Income-tax Act, 1961, as amended up to 2026. This is the anti-cascading relief in the DDT regime and it is the item most often disallowed on a technicality. Four conditions have to be met and each is a separate point of failure. (1) The dividend must be received 'during the financial year' — the same financial year in which the parent's own distribution falls, on the words of the clause. (2) Where the subsidiary is domestic, the reduction is conditional on the subsidiary having 'paid the tax which is payable under this section on such dividend' — actual payment by the subsidiary, not merely a liability, and not merely the parent's belief that it was paid. (3) Where the subsidiary is foreign, the gate is different: the tax must be payable by the domestic company under s.115BBD on that dividend, so the concessional foreign-dividend regime and the DDT set-off are linked. (4) The holding must satisfy the Explanation — more than half in nominal value of the equity share capital. Fifty per cent exactly is not 'more than half', and a holding measured by voting power or by paid-up value rather than nominal value of equity is not what the Explanation asks for. The proviso against double counting matters in a three-tier group: a dividend that has already been used to reduce the charge at one level cannot be used again at another. And clause (ii) adds a separate, unconditional reduction for dividend paid to any person for, or on behalf of, the New Pension System Trust referred to in s.10(44) — that one has no subsidiary test and no payment-of-tax test attached to it. Finally, the set-off feeds the grossing-up. Sub-section (1B) grosses up 'the amount by way of dividends referred to in sub-section (1) as reduced by the amount referred to in sub-section (1A)', so the sub-section (1A) reduction is taken first and the grossed-up figure is computed on the net. Taking the set-off after grossing up overstates the tax. If it applies to you, the first step is this: Put the subsidiary's own DDT challan on the file. Where the subsidiary is a domestic company the reduction is conditional on the subsidiary having paid the s.115-O tax on that dividend, and the challan is the only thing that proves it.
Sub-section (1A) provides that the amount referred to in sub-section (1) shall be reduced by (i) the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and (a) where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend, or (b) where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend, with a proviso that the same amount of dividend shall not be taken into account for reduction more than once; and (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. The Explanation provides that a company shall be a subsidiary of another company if such other company holds more than half in nominal value of the equity share capital of the company. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The set-off is available only where the dividend was received from a subsidiary as defined in the Explanation, in the same financial year, and the tax condition in clause (i)(a) or (i)(b) is satisfied; the same dividend cannot be used twice; and the reduction is taken before the s.115-O(1B) grossing-up.
This is statutory text, not a decision. The conditional structure is decisive: the words 'if such dividend is received from its subsidiary and' are followed by two alternative conditions, so the reduction is not available on the mere fact of receipt. The Explanation supplies its own definition of subsidiary for this sub-section alone, and the proviso is an express bar on double counting. The order of operations comes from sub-section (1B), which computes on the sub-section (1) amount 'as reduced by the amount referred to in sub-section (1A)'. In the words reproduced by the source cited on this page: "Provided that the same amount of dividend shall not be taken into account for reduction more than once;"
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 115-O(1A) of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115-O(1A), section 115-O, section 115-O(1B), section 115BBD, section 10(44), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The set-off is available only where the dividend was received from a subsidiary as defined in the Explanation, in the same financial year, and the tax condition in clause (i)(a) or (i)(b) is satisfied; the same dividend cannot be used twice; and the reduction is taken before the s.115-O(1B) grossing-up. It arises in How Tax Law Is Read and Deductions & Disallowances matters, on section 115-O(1A), section 115-O, section 115-O(1B), section 115BBD, section 10(44) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the shareholding against the Explanation as written: more than half in nominal value of the equity share capital. Record the nominal value computation, not the voting percentage. Check the financial year. The clause reduces by dividend 'received by the domestic company during the financial year', so match the receipt to the year of the parent's own distribution. Where the subsidiary is foreign, do not look for a DDT payment at all — the condition is that tax is payable by the domestic company under s.115BBD on that dividend. In a multi-tier group, tabulate every use of each dividend: the proviso forbids the same amount being taken into account for reduction more than once. Apply the reduction before the s.115-O(1B) grossing-up, not after — sub-section (1B) works on the amount 'as reduced by the amount referred to in sub-section (1A)'. If the payment was to or on behalf of the New Pension System Trust under s.10(44), claim it under clause (ii), which carries none of the subsidiary conditions.
Superseded by amendment. Sub-section (1A) operates only as part of the s.115-O charge, which sub-section (1) confines to dividend declared, distributed or paid on or before 31 March 2020. It is spent for later years but remains the law for FY 2019-20 and earlier, which this library covers. The two published texts of the section compared for this entry are identical, so no amendment to sub-section (1A) itself is recorded. No later treatment has been checked beyond that comparison, and no Finance Act text has been read. What a reader should take from that. Sub-section (1A) is a reduction provision, not a charge: it reduces the amount on which the distributing company pays additional income-tax by the dividend it has itself received from a subsidiary in the same year, subject to the conditions in clause (i) and to the bar in sub-section (1B) against the same dividend being taken into account more than once. Because the whole of s.115-O ceased to reach distributions after 31 March 2020, the provision can only arise now in an assessment, appeal or rectification for FY 2019-20 or earlier, and a practitioner must read the sub-section as it stood for that year rather than in its final form. The commencement of clause (ii), which deals with the reduction for dividend received by a New Pension System Trust, and of the s.115BBD limb of clause (i)(b) has not been established, so a year before 2012 in particular should be checked against the Act itself before clause (i)(b) is relied on. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Sub-section (1A) is taken from the Department's own published text of section 115-O, under the heading 'Tax on distributed profits of domestic companies', and has been checked against a second published version of the same section. The two agree, with one trivial typographic difference in the Explanation: one carries 'a sub-sidiary' with a line-break hyphen and 'if such other company, holds more than half', the other 'a subsidiary' and 'if such other company holds more than half'. The later wording is the one used here. The published texts of sections 115-O, 115P, 115Q, 115R, 115S, 115T and 115BBDA carry no numbered footnote list at all, in any version available here, so no commencement date and no amending Act number can be sourced from them. Where a date is given below it is either printed in the statutory text itself or bracketed between two published versions of it, and the entry says which. The insertion of clause (ii) (the New Pension System Trust reduction), and that of the s.115BBD limb of clause (i)(b), cannot be dated on that material, and this entry states no commencement date for either. A practitioner working a year before 2012 should check whether s.115BBD existed for that year before relying on clause (i)(b). On the date in decided_on: this is a statutory-position entry and 2020-04-01 is not a decision date. It is the date from which the position stated here operates — 1 April 2020, the day after 31 March 2020, the last day on which s.115-O(1), and so the s.115-O(1A) reduction that works on it, reaches a distribution. That end-date is printed in the statutory text; the Act that inserted it and its formal commencement notification have not been read, so the field records the date the section's own words fix and not a verified commencement. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The set-off is available only where the dividend was received from a subsidiary as defined in the Explanation, in the same financial year, and the tax condition in clause (i)(a) or (i)(b) is satisfied; the same dividend cannot be used twice; and the reduction is taken before the s.115-O(1B) grossing-up.
TaxSphere, “Statutory position — s.115-O(1A): the set-off for dividend received from a subsidiary, and the conditions that gate it”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-115-o-1a-set-off-for-dividend-from-a-subsidiary/ (validity last checked 2026-09-08)
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