DEEMED DIVIDEND
In reality these payments are not dividend but for the purpose of income tax they are treated as
dividends.
Objec ve:
The objec ve is to plug the loopholes in the tax provision and to check avoidance.
Sec 2(22) (a) Any Distrubation
of assets
Sec 2(22) (b) Any Distribution
of Debentures , Debenture
stocks, Deposit certificates
Sec 2(22) (C) Distribution of
Deemed Dividend
assets on liquidation
Sec 2(22) (d) Reduction of
Capital
Sec 2(22) (e) Loans or
Advances by Closely held
company
A. Sec 2(22) (a): Any Distribu on of assets: Any distribu on of Assets by a company to its
shareholders to the extent the company possesses accumulated profits capitalised or not
Notes:
1. In case of Bonus shares, there is no release of assets hence, issue of bonus shares is
not deemed as dividend.
2. When assets are distributed u/s 2(22)(a)/(c)/(d), the FMV of the asset on the date of
distribu on has to be taken for compu ng the dividend.
DEEMED DIVIDEND
B. Sec. 2(22)(b): Any distribu on of Debentures, deposit cer ficates, etc.:
1. Any distribu on to its shareholders by Co. of debentures, debentures stock or
deposit cer ficates, and
2. Any distribu on to its preference shareholders of shares by way of Bonus, to the
extent to which Co. possesses accumulated profit (capitalized or not)
C. Sec 2(22)(c): Distribu on of assets on liquida on
Any distribu on of assets by the company on liquida on to the extent to which the company
possesses accumulated profit (capitalized or not).
D. Sec 2(22)(d): Reduc on of share Capital
Any distribu on to its shareholder by the company on reduc on of its capital to the extent to which
the company has accumulated profit (Capitalized or not).
E. Sec 2(22) (e) Loans or Advances by Closely held company
Any Concern, HUF,
Company, Firm, AOP, BOI
etc
Substan al Interest
10% or More Vo ng Power
Closely Held Company Share Holder
Loan or Advances
Benefits or Behalf
Any Person
Notes:
1. Loan or advances is treated as deemed dividend & taxable in hands of shareholder to the
extent to which company possesses accumulated profit.
2. Concern means HUF, Firm, Company, AOP/BOI.
3. Substan al interest means 20% or more ve ng power/PSR at any me during the Py
4. Loan is repaid or Company charges market rate of interest then also loan is treated as
deemed dividend.
5. Accum, profit means profit as per Companies Act (means accoun ng profit)not Assessable
profit.
6. Sec on 2(22)(e) is not applicable in case of trade advances means advance which is in the
nature (of commercial transac on)
DEEMED DIVIDEND
Dividend shall not include:
1. Any Advance or Loans given by Company in the ordinary course of its business of money
lending. where money lending is a "substan al part of the business (SPOB)". SPOB has to be
understood on a case-to-case basis. The relevant factors can be T/o, profits, manpower,
capital employed etc.
2. Any dividend paid by a company, which is set off against the loan which has been deemed as
dividend u/s 2(22)(e)
3. Buy back of shares.
4. Shares allo ed to shareholder of demerged Company by resul ng Company under Demerger
5. Any distribu on made u/s 2(22)(c)/2(22)(d) is respect of preference shares.
……… Thank You……..