Section 115-O

Section 115-O — the law in short

What the courts have decided on section 115-O, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Union of India v Tata Tea Co Ltd Supreme CourtHelps department
  Sixty per cent of my tea company's income is agricultural and outside income tax. When I distribute dividend, is the distribution tax payable on the whole dividend or only on the taxable forty per cent?
  On the whole dividend. The Supreme Court upheld section 115-O as within Parliament's competence under Entry 82 of List I and set aside the Calcutta High Court's rider that additional tax could be charged only on 40 per cent of the dividend. Dividend declared and distributed is not impressed with the character of the profits out of which it is paid, so it does not become agricultural income in the shareholder's hands merely because the company's income was largely agricultural. Reading a 40 per cent limit into section 115-O would alter the provision, for which there is no warrant. The tea company's appeal was dismissed.
• Godrej & Boyce Manufacturing Co Ltd v DCIT Supreme CourtCuts both ways
  The Assessing Officer has disallowed interest under section 14A against my dividend income, though I have more than enough of my own funds — can he do that without showing a link?
  No, not on this record. The Supreme Court held on 8 May 2017 that section 14A does apply to dividend on which the company has paid tax under section 115-O, because such dividend is not includible in the shareholder's total income. But section 14A(1) still requires proof that the expenditure sought to be disallowed was actually incurred in earning that dividend. Here the Assessing Officer recorded no reasons, showed no nexus, and departed from findings for earlier years without any new fact. With interest-free funds of about Rs.280 crore against investments of Rs.125 crore, no diversion of borrowings was proved. The assessee got the full exemption.
• Foseco India Ltd. Company v. Assistant Commissioner of Income Tax High CourtCuts both waysUnder appeal
  Can I still rely on Colorcon Asia to get the treaty rate on DDT, or has the Bombay High Court unsettled it?
  It has unsettled it, but has not overruled it. On 27 April 2026 a Division Bench of the Bombay High Court, hearing seven appeals of Foseco India Ltd., framed two questions for a Larger Bench: whether the Division Bench decision in Colorcon Asia Pvt. Ltd. lays down the correct position in law when it holds that DDT is a tax paid by the company on the dividend income of the shareholder, entitling the shareholder to the benefit of the India-UK treaty; and whether, considering the Supreme Court's decision in Godrej & Boyce, Colorcon Asia is per incuriam. The Registry was directed to place the proceedings before the Chief Justice for constitution of a Larger Bench.
• Colorcon Asia Pvt. Ltd. v. Joint Commissioner of Income Tax High CourtHelps taxpayerUnder appeal
  My Indian company paid DDT at over twenty per cent on dividend to its UK parent. Can I restrict it to the ten per cent treaty rate, and does the Special Bench decision stop me?
  A Division Bench of the Bombay High Court at Goa held that it can. It allowed the appeal, set aside the Board for Advance Rulings' ruling of 27 June 2024, and declared that Colorcon Asia Pvt. Ltd. is entitled to restrict the tax rate on dividends distributed by it to Colorcon Ltd, United Kingdom, at ten per cent under Article 11 of the India-UK tax treaty — on the reasoning that DDT paid by a distributing company is not an income tax on the profits or income of the company but a tax on the dividend, which is the income of the shareholder, charged in the company's hands only for administrative convenience, so that s.90(2) lets the lower treaty rate be applied.
• Mewar Polytex Ltd v ACIT High CourtHelps departmentNo later treatment found
  The loan my client's company took carried interest and TDS was deducted on it, and the lender's objects clause covers financing. Is that enough to keep it out of s.2(22)(e)?
  No, on these facts. The Rajasthan High Court held that payment of interest and deduction of tax at source do not convert a loan into an inter-corporate deposit or into a loan taken in the ordinary course of business, and that the sub-clause (ii) exception needs money lending to be a substantial part of the lender's business — interest of Rs 2,97,552 on a single loan was not. The Court also held that deemed dividend under s.2(22)(e) was outside the s.10(34) exemption read with s.115-O and remained taxable in the recipient's hands.
• Bata India Ltd. v. ACIT ITATCuts both waysNo later treatment found
  Can I simply cite Colorcon Asia and get the treaty rate on my DDT, or will the Tribunal want more?
  It will want more. The Kolkata Tribunal admitted the additional ground but declined to decide it, restoring the issue to the Assessing Officer for re-adjudication. It held that although the ground is a legal one it requires verification of facts, and it identified three things that had to be established on the Kolkata Bench's own earlier decision in Indian Oil Petronas — that the dividend constitutes income in the hands of the non-resident shareholder, that the shareholder is the beneficial owner, and that the shareholder has no permanent establishment in India — and two things not considered in Colorcon Asia, namely the protocol to the treaty and the effect of the Supreme Court's decision in Nestle SA.
• Sophos Technologies Pvt Ltd v DCIT ITATHelps taxpayerNo later treatment found
  Your APA produced extra income for a year whose advance tax dates passed long ago, and you paid s.234B and s.234C interest on it in the modified return. Can you get it back?
  Yes, before this Bench. The Tribunal directed the jurisdictional Assessing Officer to delete the additional s.234B and s.234C interest levied on the income added by the APA and to refund it, and allowed the appeal. It gave that direction in one sentence, as following the precedents placed before it; it did not set out reasoning of its own on the interest question.
• Mitsui Kinzoku Components India Pvt. Ltd. v. CIT (Appeals), NFAC ITATHelps taxpayerNo later treatment found
  I paid DDT at the full domestic rate years ago and never claimed the treaty rate in my return. Is there any way to get the excess back now?
  The Delhi Tribunal allowed exactly that route. The company had paid DDT at 16.61 per cent on dividend to its Japanese parent for FY 2010-11, and after the Supreme Court's decision in Tata Tea and the Tribunal's decision in Giesecke & Devrient it applied to the Assessing Officer under s.237 on 27 November 2020 for refund of the excess of 6.61 per cent. The Tribunal held the claim maintainable notwithstanding that it had not been made in the return, followed the Bombay High Court in Colorcon Asia, and directed the Assessing Officer to charge tax on the dividend distributed to Mitsui Mining and Smelting Company Limited, Japan at ten per cent under Article 10 of the India-Japan treaty; all three appeals were allowed.
• Cognizant Technology Solutions India P Ltd v ACIT ITATHelps departmentUnder appeal
  We repurchased shares through a court-approved scheme. Can the department still call it a dividend?
  On these facts, yes. The Chennai Tribunal held the repurchase was a colourable device — in substance a reduction of capital releasing the company's assets to shareholders — taxable as deemed dividend under s.2(22)(d), alternatively s.2(22)(a), with dividend distribution tax under s.115-O payable by the company. The High Court's sanction of the scheme conferred no tax immunity.
• Giesecke & Devrient (India) Pvt. Ltd. v. Addl. CIT ITATHelps taxpayer
  Is there any Tribunal authority, older than the recent High Court decisions, that DDT cannot exceed the treaty rate — and can I still cite it?
  Yes. The Delhi Tribunal held on 13 October 2020 that the tax rates specified in a double taxation avoidance agreement in respect of dividend must prevail over DDT, and that the DDT levied by the company should not exceed the rate specified in Article 10 of the India-Germany treaty. It allowed the additional ground on principle but restored the matter to the Assessing Officer for the limited purpose of verifying, under Article 10(4), whether the beneficial owner carried on business in India through a permanent establishment; the appeal was allowed in part for statistical purposes.
• Statutory position — the proviso to s.57: only interest, capped at twenty per cent of the dividend, from AY 2021-22 CBDT Circulars & InstructionsCuts both ways
  Dividends are taxable in my hands again. What can I actually deduct against dividend income, and is there a limit?
  Only interest expense, and not more than twenty per cent of the dividend income included in your total income for that year computed without this deduction. The proviso to s.57 was inserted by the Finance Act 2020 with effect from 1 April 2021, so it applies from AY 2021-22 onwards; the same amendment substituted the word 'dividends' in clause (i) for 'dividends, other than dividends referred to in section 115-O', which is what brought ordinary dividends back into the shareholder's assessment.
• Statutory position — s.115-O(1A): the set-off for dividend received from a subsidiary, and the conditions that gate it CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  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.
• Statutory position — s.115-O(6), (7) and (8): the SEZ developer exemption that died on 1 June 2011, the business trust carve-out and the IFSC unit carve-out CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client is an SEZ developer and paid no DDT on dividends declared out of current income. The Assessing Officer says the exemption was withdrawn. When did it go, and are there other carve-outs I should be looking at?
  Section 115-O(6) exempted from tax on distributed profits any amount declared, distributed or paid on or after 1 April 2005 out of its current income by an undertaking or enterprise engaged in developing, or developing and operating, or developing, operating and maintaining a Special Economic Zone, in the hands of the developer or enterprise or the person receiving the dividend — but its proviso says in terms that the provisions of that sub-section shall cease to have effect from 1 June 2011. Two other carve-outs sit alongside it and are still worth checking for a pre-2020 year: sub-section (7) for a specified domestic company distributing to a business trust out of current income on or after the specified date, and sub-section (8) for a company that is a unit of an International Financial Services Centre deriving income solely in convertible foreign exchange, on amounts declared on or after 1 April 2017 out of current income or income accumulated as such a unit after 1 April 2017.
• Statutory position — s.115-O: the dividend distribution tax charge, the fifteen per cent rate, the thirty per cent proviso for s.2(22)(e), and the s.115-O(1B) grossing-up CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  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.
• Statutory position — s.115BBDA: the ten per cent charge on a resident shareholder receiving dividend above ten lakh rupees, and why it sat on top of DDT rather than instead of it CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  My client got a notice charging ten per cent on his dividend income under s.115BBDA even though the companies had already paid DDT. Is that double taxation, and for which years does it apply?
  Section 115BBDA charges a specified assessee resident in India, whose total income includes dividend in aggregate exceeding ten lakh rupees declared, distributed or paid by a domestic company or companies on or before 31 March 2020, to income-tax at ten per cent on the amount of such dividend in aggregate exceeding ten lakh rupees, plus the tax on the rest of his income computed as if the dividend were excluded. Sub-section (2) bars any deduction for expenditure or allowance and any set off of loss in computing that dividend income, and the Explanation excludes a s.2(22)(e) deemed dividend and takes a domestic company, a s.10(23C)(iv)/(v)/(vi)/(via) fund, institution, trust, university or hospital, and a trust or institution registered under s.12A, s.12AA or s.12AB out of 'specified assessee'.
• Statutory position — s.115P interest at one per cent a month and s.115Q deeming the company an assessee in default on unpaid DDT CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  My company paid its dividend distribution tax late. What interest runs, from when, and what can the Department do to recover the tax itself?
  Section 115P charges simple interest at one per cent for every month or part of a month on the unpaid tax on distributed profits, running from the date immediately after the last date on which the tax was payable under s.115-O(3) — fourteen days from the earliest of declaration, distribution or payment — and ending on the date the tax is actually paid. Section 115Q then deems the principal officer and the company to be an assessee in default in respect of the amount payable, and applies all the provisions of the Act for the collection and recovery of income-tax.
• Statutory position — how DDT was abolished: the end-date written into s.115-O(1), s.115R(2) and s.115BBDA(1), and the withholding that replaced it under s.194 and s.194K CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  Everyone says DDT was abolished in 2020. Which provision actually did it, from what date, and what withholding took its place on dividend and on mutual fund income?
  No section was repealed. The abolition was done by writing an end-date into the charging words themselves: s.115-O(1) now charges only dividend declared, distributed or paid 'on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020'; s.115R(2) charges only income distributed by a specified company or Mutual Fund 'on or before the 31st day of March, 2020'; and s.115BBDA(1) reaches only dividend 'declared, distributed or paid by a domestic company or companies on or before the 31st day of March, 2020'. Dividend then fell to be taxed in the shareholder's hands, with withholding revived under s.194 for dividend paid by a company and s.194K for income in respect of mutual fund units, both at ten per cent.
• Statutory position — s.195: tax is deducted only on a sum “chargeable under the provisions of this Act”, and Explanation 2 fixes who owes the duty, not what is taxable CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  In March 2026 I remitted a fee to a company outside India without deducting anything, because I did not think any part of it was taxable here. The Assessing Officer now says section 195 obliged me to deduct on the whole remittance, or at least to apply to him before paying. Does section 195 say that — and since the new Act has come in, which Act governs my payment at all?
  Which Act governs is settled by one date: on the CBDT's transition FAQ, where the earlier of credit or payment falls on or before 31 March 2026 the Income-tax Act, 1961 applies, and where it falls on or after 1 April 2026 the Income-tax Act, 2025 applies instead — there, the deduction duty sits in section 393(2), Table, Serial No. 17. So a March 2026 remittance is a section 195 question. Section 195(1) does not tax a remittance; it attaches a deduction duty to “any interest … or any other sum chargeable under the provisions of this Act” paid to a non-resident or a foreign company, at the time of credit or of payment, whichever is earlier. Those five words are the gateway, and in GE India Technology Centre the Supreme Court held on 9 September 2010 that they cannot be read out of the sub-section: a payer who is fairly certain that no part of the sum is chargeable in India may make that determination himself and is not obliged to apply under section 195(2) first. Section 195(2) is the payer's application where a composite payment is partly chargeable; section 197 is a different route, taken by the recipient. Sub-section (6) requires information about every sum, whether or not chargeable, in the form prescribed by rule 37BB — which is why the bank asks for a 15CA even where nothing is deductible.
• Statutory position — Rule 40BB: how the "amount received by the company" is computed for s.115QA buy-back tax, sub-rule by sub-rule, including bonus shares at nil and dematerialised shares on FIFO CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has computed my client company's buy-back tax by deducting what the tendering shareholder paid for the shares. Which figure does the Act actually require, and where is it laid down?
  Rule 40BB matters only for buy-backs governed by s.115QA — that is, buy-backs before 1 October 2024, since the second proviso to s.115QA(1) switches that section off from that date. It prescribes, for clause (ii) of the Explanation to s.115QA(1), "the amount received by a company in respect of the share issued by it, being the subject matter of buy-back", and that figure — not the shareholder's cost — is what is deducted from the buy-back consideration to give the "distributed income" charged at twenty per cent. The general rule in sub-rule (2) is the amount actually received on subscription "including any amount actually received by way of premium"; sub-rule (13) makes the face value the amount received in any case the rule does not otherwise cover.
• DCIT v Total Oil India Pvt Ltd (Special Bench) ITATHelps departmentOverruled
  My company paid dividend distribution tax on dividend to a French shareholder. Can I pay at the lower treaty rate on dividends instead of the section 115-O rate?
  This question is now before the Supreme Court and must not be treated as closed. What follows is what this Special Bench decided in April 2023; for where the point stands today, read the validity note. No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.