Dividend Income &

Trade business Profession or Vocation

By :R. Anojah N.KayathriS.Induja

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Dividend Income

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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

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Dividends may not include: Bonus shares A payment of reduction in capital

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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.

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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

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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.

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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

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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

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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

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Trade, Business, Profession or Vocation

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Why trade is different from isolated transaction?

• Profit making motive

• Alteration of subject matter

• Nature of the assets

• The intension of acquisitions

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How to ascertain profits and income

Income Expense • Exclude

income from other sources

• Deduct allowable expenses

• Exclude exempt profits

• Add disallowable expenses

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Computation of profits from Trade, Business ,Profession or Vocation

• Section 25 - deals with allowable expenditure

• Section 26 - deals with disallowable expenditure

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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.

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Bad debts

• Bad debts incurred Bad debts

Trade debts Non trade debts

Provisions

Written off

Specific General

Allowed Not allowedAllowed

Not allowed

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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

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ETF / EPF Contribution

• If approved or regulated provident , pension or Savings fund are Allowed.

(but maximum of 25% of total salary )

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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

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Retiring of Gratuity

Gratuity

Provision Paid

Disallowed Allowed

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Q & A

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Thank you !!