My company paid dividend distribution tax for a year before 2020 and the Assessing Officer is now recomputing it. What does s.115-O actually charge, at what rate, and on what base?
Section 115-O charges a domestic company to additional income-tax, called tax on distributed profits, on any amount declared, distributed or paid by way of dividends (whether interim or otherwise) on or after 1 April 2003 but on or before 31 March 2020, whether out of current or accumulated profits, at the rate of fifteen per cent. A proviso to sub-section (1) makes that rate thirty per cent for a deemed dividend under s.2(22)(e), and sub-section (1B) requires the net distributed profits to be grossed up — increased to such amount as would, after reduction of the tax on the increased amount at the sub-section (1) rate, be equal to the net distributed profits — so the effective burden is higher than the headline fifteen per cent.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Income-tax Act, 1961, s.115-O, as printed on the departmental pages stamped Year: 2026 and Year: 2025. It bears on section 115-O, section 115-O(1), section 115-O(1B), section 115-O(2), section 115-O(3), section 115-O(4), section 115-O(5), section 2(22)(e), section 115P of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
Three things in the section are constantly got wrong. First, the charge is on the amount 'declared, distributed or paid', not on the company's total income, and sub-section (2) says in terms that the tax is payable even where no income-tax at all is payable by the company on its total income computed under the Act. Second, the grossing-up in sub-section (1B) is not surcharge and not cess: it re-bases the levy, so a fifteen per cent rate applied to a grossed-up base produces an effective rate of about 17.65 per cent before surcharge and cess, and the figures actually recorded in the reported orders on this point are 16.61 per cent for FY 2010-11 (fifteen per cent enhanced by 7.5 per cent surcharge and 3 per cent cess, on the Delhi Tribunal's record in Mitsui Kinzoku Components India Pvt. Ltd.), 16.995 per cent on the Kolkata Tribunal's record in Bata India Ltd. for AY 2010-11, and 20.36 per cent in the Bombay High Court's record in Colorcon Asia Pvt. Ltd. for the years there. Do not carry a single 'DDT rate' across years — take the rate from the year's Finance Act surcharge and cess, and from whether the grossing-up applied. Third, the thirty per cent proviso for a s.2(22)(e) deemed dividend is a late arrival: it is absent from the departmental text stamped Year 2017 and present in the text stamped Year 2018, and sub-section (1B) is expressly disapplied to a s.2(22)(e) dividend by its own proviso, which is also absent in 2017 and present in 2018. So a loan-to-shareholder treated as deemed dividend in an early year is not automatically caught by the thirty per cent charge. Time of payment matters as much as rate: sub-section (3) gives the principal officer and the company fourteen days from the earliest of declaration, distribution or payment, and s.115P charges interest from the day after that. Sub-section (4) makes the tax the final payment in respect of the amount distributed, with no further credit claimable by the company or by any other person, and sub-section (5) bars any deduction under any other provision to the company or to a shareholder in respect of the amount charged or the tax on it.
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 (1) opens 'Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year'. It charges 'any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits' to additional income-tax, 'hereafter referred to as tax on distributed profits', at fifteen per cent, with a proviso substituting thirty per cent for a dividend referred to in s.2(22)(e). Sub-section (1A) reduces the amount charged; sub-section (1B) grosses up the net distributed profits, with a proviso disapplying the grossing-up to a s.2(22)(e) dividend. Sub-section (2) makes the tax payable notwithstanding that no income-tax is payable by the company on its total income. Sub-section (3) makes the principal officer and the company liable to pay within fourteen days from the earliest of declaration, distribution or payment of any dividend. Sub-section (4) treats the tax as the final payment in respect of the amount distributed, with no further credit to the company or any other person. Sub-section (5) bars any deduction under any other provision to the company or a shareholder in respect of the amount charged or the tax on it. Sub-sections (6), (7) and (8) carve out a Special Economic Zone developer, a specified domestic company paying to a business trust, and an International Financial Services Centre unit.
As the section stands on the departmental text stamped Year: 2026 and Year: 2025: the charge is on the distributing domestic company, on the amount of dividend declared, distributed or paid between 1 April 2003 and 31 March 2020, at fifteen per cent (thirty per cent for a s.2(22)(e) deemed dividend), on a base grossed up under sub-section (1B) except for a s.2(22)(e) dividend; payable within fourteen days of the earliest of declaration, distribution or payment; final, with no credit and no deduction to the company or the shareholder.
This is statutory text, not a decision. The structure of the section is what does the work: the non obstante clause in sub-section (1) and the words 'in addition to the income-tax chargeable in respect of the total income of a domestic company' put the levy outside the ordinary computation of total income; sub-section (2) confirms that by charging the tax whether or not any income-tax is payable on total income; and sub-sections (4) and (5) close off credit and deduction. Whether that structure makes the levy a tax on the company or a tax on the shareholder's dividend income is the whole of the treaty-rate litigation and is dealt with separately in this library.
any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent:
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Handle my notice → Ask a CA on WhatsAppSection 115-O charges a domestic company to additional income-tax, called tax on distributed profits, on any amount declared, distributed or paid by way of dividends (whether interim or otherwise) on or after 1 April 2003 but on or before 31 March 2020, whether out of current or accumulated profits, at the rate of fifteen per cent. A proviso to sub-section (1) makes that rate thirty per cent for a deemed dividend under s.2(22)(e), and sub-section (1B) requires the net distributed profits to be grossed up — increased to such amount as would, after reduction of the tax on the increased amount at the sub-section (1) rate, be equal to the net distributed profits — so the effective burden is higher than the headline fifteen per cent. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115-O, section 115-O(1), section 115-O(1B), section 115-O(2), section 115-O(3), section 115-O(4), section 115-O(5), section 2(22)(e), section 115P of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.115-O, as printed on the departmental pages stamped Year: 2026 and Year: 2025. Three things in the section are constantly got wrong. First, the charge is on the amount 'declared, distributed or paid', not on the company's total income, and sub-section (2) says in terms that the tax is payable even where no income-tax at all is payable by the company on its total income computed under the Act. Second, the grossing-up in sub-section (1B) is not surcharge and not cess: it re-bases the levy, so a fifteen per cent rate applied to a grossed-up base produces an effective rate of about 17.65 per cent before surcharge and cess, and the figures actually recorded in the reported orders on this point are 16.61 per cent for FY 2010-11 (fifteen per cent enhanced by 7.5 per cent surcharge and 3 per cent cess, on the Delhi Tribunal's record in Mitsui Kinzoku Components India Pvt. Ltd.), 16.995 per cent on the Kolkata Tribunal's record in Bata India Ltd. for AY 2010-11, and 20.36 per cent in the Bombay High Court's record in Colorcon Asia Pvt. Ltd. for the years there. Do not carry a single 'DDT rate' across years — take the rate from the year's Finance Act surcharge and cess, and from whether the grossing-up applied. Third, the thirty per cent proviso for a s.2(22)(e) deemed dividend is a late arrival: it is absent from the departmental text stamped Year 2017 and present in the text stamped Year 2018, and sub-section (1B) is expressly disapplied to a s.2(22)(e) dividend by its own proviso, which is also absent in 2017 and present in 2018. So a loan-to-shareholder treated as deemed dividend in an early year is not automatically caught by the thirty per cent charge. Time of payment matters as much as rate: sub-section (3) gives the principal officer and the company fourteen days from the earliest of declaration, distribution or payment, and s.115P charges interest from the day after that. Sub-section (4) makes the tax the final payment in respect of the amount distributed, with no further credit claimable by the company or by any other person, and sub-section (5) bars any deduction under any other provision to the company or to a shareholder in respect of the amount charged or the tax on it. If it applies to you, the first step is this: Fix the year first. The charge runs only on dividend declared, distributed or paid on or after 1 April 2003 and on or before 31 March 2020; anything outside that window is not within s.115-O at all, and the words setting both ends of the window are in sub-section (1) itself.
Sub-section (1) opens 'Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year'. It charges 'any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits' to additional income-tax, 'hereafter referred to as tax on distributed profits', at fifteen per cent, with a proviso substituting thirty per cent for a dividend referred to in s.2(22)(e). Sub-section (1A) reduces the amount charged; sub-section (1B) grosses up the net distributed profits, with a proviso disapplying the grossing-up to a s.2(22)(e) dividend. Sub-section (2) makes the tax payable notwithstanding that no income-tax is payable by the company on its total income. Sub-section (3) makes the principal officer and the company liable to pay within fourteen days from the earliest of declaration, distribution or payment of any dividend. Sub-section (4) treats the tax as the final payment in respect of the amount distributed, with no further credit to the company or any other person. Sub-section (5) bars any deduction under any other provision to the company or a shareholder in respect of the amount charged or the tax on it. Sub-sections (6), (7) and (8) carve out a Special Economic Zone developer, a specified domestic company paying to a business trust, and an International Financial Services Centre unit. 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. As the section stands on the departmental text stamped Year: 2026 and Year: 2025: the charge is on the distributing domestic company, on the amount of dividend declared, distributed or paid between 1 April 2003 and 31 March 2020, at fifteen per cent (thirty per cent for a s.2(22)(e) deemed dividend), on a base grossed up under sub-section (1B) except for a s.2(22)(e) dividend; payable within fourteen days of the earliest of declaration, distribution or payment; final, with no credit and no deduction to the company or the shareholder.
This is statutory text, not a decision. The structure of the section is what does the work: the non obstante clause in sub-section (1) and the words 'in addition to the income-tax chargeable in respect of the total income of a domestic company' put the levy outside the ordinary computation of total income; sub-section (2) confirms that by charging the tax whether or not any income-tax is payable on total income; and sub-sections (4) and (5) close off credit and deduction. Whether that structure makes the levy a tax on the company or a tax on the shareholder's dividend income is the whole of the treaty-rate litigation and is dealt with separately in this library. In the words reproduced by the source cited on this page: "any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent:"
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Income-tax Act, 1961, s.115-O, as printed on the departmental pages stamped Year: 2026 and Year: 2025. 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, section 115-O(1), section 115-O(1B), section 115-O(2), section 115-O(3), section 115-O(4), section 115-O(5), section 2(22)(e), section 115P, 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. As the section stands on the departmental text stamped Year: 2026 and Year: 2025: the charge is on the distributing domestic company, on the amount of dividend declared, distributed or paid between 1 April 2003 and 31 March 2020, at fifteen per cent (thirty per cent for a s.2(22)(e) deemed dividend), on a base grossed up under sub-section (1B) except for a s.2(22)(e) dividend; payable within fourteen days of the earliest of declaration, distribution or payment; final, with no credit and no deduction to the company or the shareholder. It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 115-O, section 115-O(1), section 115-O(1B), section 115-O(2), section 115-O(3), section 115-O(4), section 115-O(5), section 2(22)(e), section 115P 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. Recompute the base before arguing the rate: under sub-section (1B) the net distributed profits (the sub-section (1) amount as reduced by the sub-section (1A) set-off) must be grossed up, and it is the grossed-up figure that bears tax. Check whether the dividend is a s.2(22)(e) deemed dividend. If it is, the thirty per cent proviso to sub-section (1) may apply and the sub-section (1B) grossing-up is expressly excluded — but only for years whose text carries those provisos; the departmental text stamped Year 2017 carries neither. Add the year's surcharge and cess separately. The fifteen per cent in the section is the base rate only; the effective rates recorded in the Tribunal and High Court files run from 16.61 per cent to over 20 per cent depending on year. Date the payment against sub-section (3): fourteen days from the earliest of declaration, distribution and payment. If that date has passed, quantify s.115P interest at one per cent a month before the Department does. Do not claim any deduction or credit for the DDT in the company's own assessment or in a shareholder's — sub-sections (4) and (5) close both doors.
Superseded by amendment. The charge itself is spent: sub-section (1) charges only dividend declared, distributed or paid on or before 31 March 2020, and the section therefore governs no dividend paid after that date. It remains the operative law for every year up to and including FY 2019-20, which is inside this library's scope, and for the assessments, refunds and appeals flowing from those years. The Year 2026 and Year 2025 departmental texts are identical, which is the strongest evidence available this pass that no later amendment has displaced them; that is not a substitute for reading the Finance Act, and no Finance Act text was retrieved this pass. Whether the levy attracts a lower DTAA rate is separately contested. The Bombay High Court at Goa decided that question for the taxpayer in Colorcon Asia Pvt. Ltd. (28 November 2025); a coordinate Division Bench of the same Court doubted that decision and referred its correctness to a Larger Bench in Foseco India Ltd. Company (27 April 2026); and the Revenue's petition against Colorcon Asia is pending in the Supreme Court, JCIT, Panji & Ors. v. M/s. Colorcon Asia Pvt. Ltd., S.L.P. (C) No. 7546 of 2026, listed for final hearing on 29 September 2026, in which the Court has framed as a question whether tax under s.115-O is in the nature of a tax on distributed profits or a tax on dividend. 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.
Section 115-O was transcribed in full this pass from https://incometaxindia.gov.in/w/section-115-o-21 (Year: 2026, Act name 'Income-tax Act, 1961', heading 'Tax on distributed profits of domestic companies') and sub-sections (1), (1A) and (1B) were transcribed independently from https://incometaxindia.gov.in/w/section-115-o-18 (Year: 2025, same Act name and heading). The two pages agree word for word. The departmental pages for section 115-O, 115P, 115Q, 115R, 115S, 115T and 115BBDA print NO numbered footnote list at all, on any year's version I opened, 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 year-stamped departmental versions, and the entry says which. The rate history was therefore established only by bracketing year-stamped versions, which is legislative history and not a commencement date: the page stamped Year: 1998 and the page stamped Year: 1999 (/w/section-115-o-7 and /w/section-115-o-8) both print 'ten per cent' and neither prints a sub-section (1B); the page stamped Year: 2014 (/w/section-115-o-9) prints 'fifteen per cent' and does print sub-section (1B); the page stamped Year: 2017 (/w/section-115-o-11) prints sub-section (1) with NO thirty per cent proviso and sub-section (1B) with NO proviso; the page stamped Year: 2018 (/w/section-115-o-19) prints both provisos and does NOT yet contain the words 'but on or before the 31st day of March, 2020'. That last observation is what dates the closing of the window to the Finance Act 2020 and no earlier. I could not verify the brief's statement that sub-section (1B) operates 'from 1 April 2014' — I could bracket it only between the Year 1999 and Year 2014 texts, and the departmental 'Year' stamp does not say whether it reflects the position on 1 April or after a mid-year amendment. The 16.61 per cent, 16.995 per cent and 20.36 per cent figures quoted above are taken from the record of three judgments read this pass (Mitsui Kinzoku Components India Pvt. Ltd., ITAT Delhi, 31 December 2025, para 9.5; Bata India Ltd., ITAT Kolkata, 8 June 2026, para 14; and Colorcon Asia Pvt. Ltd., Bombay High Court at Goa, 28 November 2025, in the passage reproduced at para 59 of that judgment as quoted in Mitsui) and are the parties' own computations for particular years, not a statutory rate. 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, which sub-section (1) fixes as the last day on which the charge reaches a distribution. That end-date is printed in the statutory text transcribed above; the Act that inserted it and its formal commencement notification were not retrieved this pass, so the field records the date the section's own words fix and not a verified commencement notification. 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.
As the section stands on the departmental text stamped Year: 2026 and Year: 2025: the charge is on the distributing domestic company, on the amount of dividend declared, distributed or paid between 1 April 2003 and 31 March 2020, at fifteen per cent (thirty per cent for a s.2(22)(e) deemed dividend), on a base grossed up under sub-section (1B) except for a s.2(22)(e) dividend; payable within fourteen days of the earliest of declaration, distribution or payment; final, with no credit and no deduction to the company or the shareholder.
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