Section 115-O: Tax on Distributed Profits of Domestic Companies

Important current position: Dividend Distribution Tax (DDT) under Section 115-O does not apply to dividends declared, distributed or paid on or after 1 April 2020. The Finance Act, 2020 shifted dividend taxation principally to shareholders. Section 115-O remains relevant to historical distributions, disputes and compliance relating to earlier periods.

Section 115-O of the Income-tax Act, 1961 imposed an additional income-tax on certain dividends distributed by domestic companies. This article explains the historical charge, statutory subsections, exemptions, deadlines and the post-2020 treatment of dividends.

Applicability and historical DDT rates

Section 115-O generally covered dividends paid from current or accumulated profits by domestic companies, including interim dividends. The Finance Act, 2020 restricted its operation to dividends declared, distributed or paid after 31 March 2003 and on or before 31 March 2020 under the then-applicable scheme. Earlier versions of the law also governed preceding periods.

Section 115-O: Explanation of subsections

Subsection (1): Charge of tax

For the covered historical period, a domestic company was required to pay additional income-tax on dividends declared, distributed or paid, whether interim or final and whether sourced from current or accumulated profits. The ordinary statutory rate was 15%, while qualifying deemed dividends under Section 2(22)(e) attracted the special 30% provision introduced in 2018.

Subsection (1A): Reduction of dividend base

The historical law permitted reduction for qualifying dividends received from a subsidiary where the relevant domestic-subsidiary DDT or foreign-subsidiary taxation under Section 115BBD conditions were met. The same dividend could not be reduced more than once. It also provided a reduction for specified payments on behalf of the New Pension System Trust referred to in Section 10(44). For this subsection, subsidiary status was determined by holding more than half the nominal value of equity share capital.

Subsection (1B): Grossing-up

For covered ordinary dividends, net distributed profits were increased to the amount which, after deduction of DDT at the statutory rate, equalled those net profits. The grossing-up rule did not apply to dividends covered by the special Section 2(22)(e) proviso.

Subsection (2): Tax payable even without taxable profits

DDT was payable on covered distributions even if the domestic company had no income-tax liability on its computed total income.

Subsection (3): Payment within 14 days

The company and its principal officer were responsible for paying DDT to the Central Government within 14 days of the earliest of declaration, distribution or payment of the dividend.

Subsections (4) and (5): Final tax and deductions

DDT paid under the section was treated as final tax on the relevant distribution, without a further credit claim. The provision also disallowed deductions to the company or shareholder in respect of the charged distribution or tax, subject to the statutory context.

Historical exclusions and special situations

Subsection (6): Special Economic Zone developers

The historical exemption covered qualifying distributions out of current income by specified SEZ developers or enterprises, but ceased to have effect from 1 June 2011.

Subsection (7): Specified domestic companies and business trusts

Specified domestic companies wholly held by a business trust, subject to legally required or governmental holdings, were eligible for relief for qualifying dividends from current income on or after the specified acquisition date. Distributions attributable to profits up to that date were excluded from the relief. The specified date was the date on which the business trust acquired the requisite holding.

Subsection (8): International Financial Services Centre units

Historical relief applied to qualifying IFSC units established on or after 1 April 2016, deriving income solely in convertible foreign exchange, for dividends distributed on or after 1 April 2017 out of current income. An IFSC has the meaning in Section 2(q) of the Special Economic Zones Act, 2005; convertible foreign exchange was determined by the Reserve Bank of India under the applicable foreign-exchange framework.

How dividends are taxed from 1 April 2020

The Finance Act, 2020 abolished company-level DDT for new distributions and restored shareholder-level dividend taxation. Section 10(34)'s earlier exemption generally does not extend to dividends received on or after 1 April 2020, except for relevant transitional distributions on which the applicable DDT had already been paid. Companies may have tax-deduction-at-source obligations, including under Section 194, and shareholder taxation depends on residence, status, applicable rates and treaty provisions.

For a historical case, check the exact date of declaration, distribution and payment, the statutory text applicable in that year, the dividend category and any applicable relief. Historical Section 115-P interest and Section 115-Q default rules may also matter.

Key legislative history

Chapter XII-D was introduced by the Finance Act, 1997. The Finance Act, 2003 reinstated the DDT regime from 1 April 2003; the Finance Act, 2007 revised the rate to 15%; subsequent amendments addressed subsidiary dividends, grossing-up, deemed dividends, business trusts and IFSC units. The Finance Act, 2020 ended DDT for distributions on or after 1 April 2020. These provisions are retained here as historical legal context rather than presented as current DDT obligations.

Official legal references

• Income Tax Department: Section 115-O (historical statutory text)
• Income Tax Department: Tax treatment of dividends
• Income Tax Department: Dividend income
• Income Tax Department: Section 10, including clause (34)
• Income Tax Department: Domestic company tax guidance

Updated 27 October 2026. This is a general explanatory article; historic liabilities must be determined under the law applicable to the relevant transaction and assessment period.