Section 115BBDA: Tax on Certain Dividends Received from Domestic Companies
Section 115BBDA imposed an additional 10% income tax on qualifying domestic dividend income exceeding Rs. 10 lakh received by certain resident taxpayers. The provision is relevant to earlier assessment years, but is not applicable to dividends declared, distributed or paid on or after 1 April 2020.
What did Section 115BBDA provide?
Introduced by the Finance Act, 2016 with effect from 1 April 2017 (Assessment Year 2017-18), Section 115BBDA operated notwithstanding other provisions of the Act. Where a specified assessee resident in India received aggregate dividends from domestic companies exceeding Rs. 10 lakh, tax was calculated as the sum of:
- 10% on the portion of qualifying dividends exceeding Rs. 10 lakh; and
- the tax otherwise chargeable on total income after excluding the relevant dividend income.
The Rs. 10 lakh amount was a threshold for the additional tax, not a tax on the entire dividend receipt once crossed. Applicable surcharge and cess could increase the effective liability.
Meaning of key terms and legal provisions
Specified assessee
For the expanded scope effective from Assessment Year 2018-19, a specified assessee meant a resident person other than a domestic company; certain funds, institutions, universities, educational institutions, hospitals and medical institutions referred to in Section 10(23C)(iv), (v), (vi) or (via); and trusts or institutions registered under Section 12A or Section 12AA. The original provision covered resident individuals, Hindu undivided families and firms before the Finance Act, 2017 broadened its coverage.
Dividend under Section 2(22)
The definition of dividend for Section 115BBDA referred to Section 2(22) of the Income-tax Act, excluding deemed dividends covered by Section 2(22)(e). The latter broadly concerns certain loans or advances by closely held companies and is subject to its own statutory conditions.
Domestic company
Under Section 2(22A), a domestic company includes an Indian company and certain other companies that make prescribed arrangements for declaration and payment of dividends within India.
Deduction and loss set-off restriction
Section 115BBDA(2) prohibited deductions for expenditure or allowances and set-off of losses when computing the dividend income subject to the special 10% levy. This restriction related to the historical special-tax computation and should not be confused with the present rules governing dividend income.
Illustration of the historical tax calculation
| Particulars | Amount |
|---|---|
| Qualifying domestic dividends received | Rs. 15,00,000 |
| Threshold | Rs. 10,00,000 |
| Amount liable to additional tax | Rs. 5,00,000 |
| Additional tax at 10% | Rs. 50,000 |
This example illustrates the former Section 115BBDA levy only, before surcharge and cess, and does not represent current taxation.
What changed from 1 April 2020?
The Finance Act, 2020 shifted the taxation of dividends from the former dividend distribution tax system to taxation generally in the hands of shareholders. Section 115BBDA was amended so that it does not apply to dividends declared, distributed or paid on or after 1 April 2020. For resident taxpayers, dividend income is ordinarily taxable at applicable rates; classification, deductions and withholding depend on the facts and relevant statutory provisions.
Section 57: In computing dividend income under the head Income from Other Sources, the law generally allows only qualifying interest expenditure, subject to a ceiling of 20% of the dividend income, and disallows other expenditure against such dividend income.
Section 80M: Provides a deduction, subject to conditions, for certain inter-corporate dividends received by a domestic company and distributed onward within the statutory time limit.
Section 194: Prescribes tax deduction at source on certain dividends paid to residents, subject to thresholds and exceptions. Non-resident payments may engage Section 195 and applicable tax treaties.
Legislative history
- Finance Act, 2016: Inserted Section 115BBDA with effect from 1 April 2017.
- Finance Act, 2017: Expanded the definition of specified assessee with effect from 1 April 2018.
- Finance Act, 2020: Excluded dividends declared, distributed or paid on or after 1 April 2020 from the operation of Section 115BBDA.
Official legal references
Consult the Income-tax Act, 1961 on the Income Tax Department website, the Finance Acts, and the Income Tax e-Filing Portal for statutory text, amendments and administrative guidance. For later tax years, also check the Income-tax Act, 2025 and applicable commencement and transition provisions rather than assuming the historical section number continues unchanged.
Frequently asked questions
Is the additional 10% dividend tax under Section 115BBDA still applicable?
No. Section 115BBDA does not apply to dividends declared, distributed or paid on or after 1 April 2020.
Did the 10% levy apply to all dividends above the threshold?
It applied only to the qualifying portion exceeding Rs. 10 lakh, subject to the specified-assessee and residency conditions.
Are domestic dividends now tax-free for shareholders?
No. The end of the former dividend distribution tax regime generally made dividend income taxable in shareholders' hands, subject to the applicable law.
Updated: 26 October 2026. This article is general legal information; historical-year disputes require reference to the law applicable to the relevant assessment year.