Hello hello friends, how are you all friends?
I welcome you all to a new topic, a new lecture.
I am your friend C.H. Rehgupta.
Friends, today what we are going to talk about, before that
you must have seen our last lecture.
How great the last lecture was.
We covered the definition of relatives.
After the definition of relatives, we also covered the
situations where you distribute something, and when you buy
something as a buyer, then you do not have anything taxable
in your other source income.
Friends, today we will do a new discussion, and the name of
the topic is dividends.
We will continue our discussion on the topic of dividends.
Friends, what do you understand from dividends?
First of all, you tell me this, what do you understand from
dividends?
Distribution of profits.
There is a company, a private limited or a limited company,
it has made a profit.
Now the profit that came out after working hard for a whole
year, sales, minus all expenses, minus paying taxes, the
profit that was left, the profit that was left of that
company,
that profit, when the company distributes to its
shareholders, then its name becomes dividend.
See, many things will look the same to you, but their names
will be seen differently.
That is also a profit, but the company earns profit, and
when the company distributes its profit to different
shareholders, according to their capital ratio, then it
becomes a dividend.
Is there any problem in this?
No problem?
Shall I go ahead?
Very good.
Sir, where do we have a problem with you?
Sir, you have cleared so many of our concepts, what should
I tell you?
Sir, it is fun to study tax now.
Friends, it is fun, isn't it?
Friends, keep this fun intact.
This is the benefit of knowledge.
Friends, when you start enjoying studying, when you start
learning, in the language of law, then you will understand,
that you are going to do something epic in life.
If you start enjoying studying, then what is a better thing
than that?
Then how much will the literacy rate increase in our
country?
It is something to think about, isn't it?
So, we were discussing about dividends.
Have you understood what a dividend is?
Sir, I have understood what a dividend is, but in the class
of income tax, where have you started applying dividends?
Sir, listen to me,
I am saying that for the government, dividends are also an
income.
If you buy some shares of a company, what is a share?
In Hindi, if it is taken out, then what will it mean?
A share.
You have taken a share in a company, what else have you
taken?
Now, in the future, you have taken a share, in the future,
if you make a profit, then you will get a share in that
profit.
And in the future, if that company goes down, if it faces
losses, then you will also have to give something, you will
have to contribute as much as you can.
This is what it is.
This is what it is, isn't it, friends?
What else do you take out of a share?
This is what it is, isn't it, friends?
Those who say that we work in the share market, or we have
some shares, this is what it means, friends.
That they have taken shares in some companies.
Okay, friends?
For example, what is this?
This is a company.
The name of this company is
Fraud Private Limited.
Sir, how do you tell the name?
Sir, keep in mind, when the client gives you money, he will
not give you money to pay the tax.
Anyone can pay the tax.
B.com, M.com, Barbie Bus, anyone can pay.
The client will give you money to reduce the tax.
To save the tax.
Does the Income Tax Department keep an eye on you?
Is this person planning to save his tax?
Is he evading something?
Sir, you are telling the wrong thing.
You are saying that fraud should be kept in mind.
I am saying that you should know where fraud can come from.
It is possible.
In future, you may give exams in the Income Tax Department.
You may work at the officer level.
So you should know how frauds can come.
So that in future, when you go to raid, you should know
what are the transactions.
Anyway, let's come to our topic.
Sir, where do you go?
You say that my job is to motivate you.
I am not your teacher who will teach you everything.
I am your elder brother.
Who gives you life experiences.
Like I gave in the last lecture.
So, this company is
Fraud Private Limited.
And there were three brothers.
Amar, Akbar and Anthony.
When all three of them gather in one place, what do they
say?
Amar, Akbar and Anthony.
So, A-G means
A-G-O-G A-G means Anthony Gonsalves.
So, all three of them put their money.
They put Rs. 10,000.
He put Rs. 10,000.
He put Rs. 10,000 and he put Rs. 10,000.
The profit of the company was Rs.
This is the profit of the company.
So, where will the company keep this money?
Will the company take it to its home?
The profit of the company will be distributed among its
shareholders.
So, the profit will be distributed among Amar, Akbar and
Anthony Gonsalves.
And how much will it be distributed?
Because all three of them are equally involved and all
three are shareholders of this company.
So, Rs.
40,000-40,000 will be distributed among all three.
Is the point clear?
Any problem?
Any fear?
Any problem?
Son, I will solve all your problems.
You don't worry.
Have confidence.
And listen to me with confidence.
The profit of Rs.
40,000-40,000 will be distributed.
Now, in the eyes of the government, is this the income of
Amar, Akbar and Anthony?
Or in your eyes, is this the income?
A person has invested Rs.
10,000 in a company and at the end of the year, the company
gets a profit and he is receiving Rs.
So, what is it? It is the income, right?
It is the income, right?
So, should tax be imposed on that income?
Yes or no?
Yes.
Where will it be imposed? On which head?
It will be imposed on other sources.
This will be called tax on dividends.
Friends, what used to happen earlier, a few years back,
that the government did not impose tax on dividends.
But now, what is happening is that tax is being imposed on
dividends.
When tax was not imposed on dividends earlier, then tax was
imposed on the company when it used to distribute.
The tax collection that the government used to collect was
not from the shareholders.
It was from the company.
When the company used to distribute, then the dividend was
taxable in the hands of the company.
Now, what have they done?
Dividend is taxable in the hands of shareholders like you
and me.
And nothing is taxable in the hands of the company.
When the company distributes dividends, then no dividend
distribution tax is imposed on the company.
And the dividends are taxable in the hands of the
shareholders.
in the hands of the shareholders.
Sir, why is it so?
Sir, it is because since the Modi government has come into
power, the Modi government is very aware of the corporate
sector.
They believe that if we for the corporate sector, for the
corporate sector, bring some good policies, only then will
they benefit from growth.
And as the corporate sector grows, our country will
progress in the same way.
Employment opportunities will be created.
Sir, this is a good thing for the corporate sector.
Sir, for retail shareholders like us, what should we do?
We also have to prove our participation in the development
of the country.
We have to prove our participation in the development of
the country.
That is why we are happy that roads are being built,
schools are being built, hospitals are being built, our
taxes are being collected.
That is why we are happy.
Sir, you have said such a good thing that development is
taking place in the country and that too for our money.
So, we were discussing about dividends.
There is nothing new in this.
Income is taxable.
It will be.
Sometimes, some transactions are created because the
company knows that if they distribute dividends, then the
dividends will be taxable in the hands of shareholders.
Sometimes, some companies are like this. For example, I am
and our director is there.
We two people together formed a company. Now, we are the
shareholders of that company.
Two people formed a company and we are the shareholders and
our ratio is also 50-50.
This has become a company.
And in this, I am C.A. Shreya Gupta and he is our director,
director Mayank.
He invested money, let's say he invested 50 lakhs, he
invested 50 lakhs and put money in the company.
1 crore has become the company's capital.
There is no other shareholder of this company. Only me and
my director are the shareholders of this company.
Any problem so far? I am explaining this case.
Now, what happened?
We both were very hardworking. You know how hard I work
with you from morning to night.
I worked so hard day and night.
And the profit of this company is 3 crores.
Any problem in understanding this case? No problem.
Now, do I have this profit of 3 crores?
Tomorrow, I have to take out this profit.
I can't keep this profit in the company.
Tomorrow, I have to buy a car.
I have to buy a property which my relative will take away
from me through inheritance.
I have to create that too.
I have to give money to my director.
For that, we will have to withdraw this 3 crores from the
company's account.
Yes, sir. We will have to do it.
Any problem? No.
Now, if I withdraw this 3 crores and give it to these two
people,
then how much share will be made out of this 3 crores?
According to 50-50.
1.5 crores and 1.5 crores.
Absolutely right.
There is a 50-50 ratio. They have invested 50-50 lakhs.
Profit of 1.5 crores.
Now, pay attention to this.
Because I am distributing 1.5 crores of profit.
Is there anything taxable in the company's hands?
Nothing.
But in my hands and in the hands of my director, is this
taxable?
Because there is a dividend.
Yes, it is taxable.
Sir, I am stuck.
I don't have to pay tax on this.
The company worked hard. The company earned profit.
The company also paid tax on that money.
Now, when I am getting a dividend,
then should I pay tax on it?
So, what should I do?
So, people used their brains.
And people made such a scheme,
which you will be surprised to hear, friends.
What did they do?
They first increased the section of the law.
They increased the section of the law.
The section of the law says,
that if you distribute your dividend,
if you distribute the share of the profit,
then the person who is receiving, the shareholder,
will get taxable in his hands.
But tell me one thing,
money is money,
whether it is like this or like that.
So, why don't I distribute the dividend, should I sell the
asset of my company,
which I have?
Was there any plant and machinery in my company,
whose market value was 3 crores?
I didn't distribute the dividend.
I sold the plant and machinery.
I got 3 crores cash.
Who am I? The company is still running.
I sold the plant and machinery,
sold for 3 crores.
I sold the plant and machinery,
received 3 crores,
and distributed that 3 crores
in the ratio of 50-50 between me and the director.
1.5 crores.
Was that a profit?
Think carefully.
Was the plant and machinery that I sold,
the plant was my asset,
which helped me run the business of my company,
I sold that.
Was that a profit?
It wasn't a profit.
I sold an asset.
It is a matter of chance,
I sold it for the same amount of money,
which I was supposed to distribute.
Now, that 1.5 crores has reached both of them.
Legally.
It has reached both of them.
1.5 crores.
Was that a profit?
I am making a profit of 3 crores in books.
What will I show the government?
Yes, there was a profit of 3 crores.
But I didn't distribute it.
I sold the asset.
And the money that came after selling the asset,
I distributed it.
So, what kind of a dividend is this?
What kind of a dividend is this?
It is not a dividend.
So, when there is no dividend,
then what is the tax on the dividend?
This was the planning of those two people.
The government said,
Friends,
I know
that I am going to bring good days.
But if you keep doing this,
then such good days will come, which you can't handle.
So, they put a section.
And what was that section?
Come,
come friends, come with me
and open your notes.
And I will make you read that section.
Come.
They said,
Read section 222A.
They said,
that the money that you are distributing,
the money that you are distributing after selling the
assets,
they will consider it as a deemed dividend.
This is not a dividend.
Even we don't know.
But we have to put a tax on it.
Because you were basically
putting mud in the eyes of the law
and distributing this money.
So, what will I do now?
I don't know what a dividend is.
So, I will make a word for it,
which is deemed dividend.
I have already told you
that whether you believe it or not,
you have to believe
that it is a dividend.
And when it becomes a dividend,
then a tax will be imposed on it.
On whose hands?
The person who is receiving it.
Receive.
Who is receiving it?
The shareholder is receiving it.
This is the point, friends.
Is there any problem in this?
Come, let's read.
222A
What does 222A mean?
Section 2,
subsection 22,
clause number A.
Come with me.
It says
that distribution of accumulated profits
entailing
the release of company's assets.
That I am distributing the company's assets,
basically I am distributing my profit.
I am distributing the accumulated profit.
And how am I distributing it?
By selling my assets.
After selling the assets,
the money that came,
I gave it to my shareholders as a dividend.
So, it says that any distribution of
accumulated profits,
whether you have capitalized it or not,
by a company to the shareholder,
is,
dividend.
It will be considered as a dividend.
And when you consider it as a dividend,
then it is obvious that it will be that person's.
We will make it taxable in the hands of
income and shareholders.
This is it, friends.
Sometimes it also happens that
plant and machinery
were different.
One plant was worth 1.5 crores,
another was worth 1.5 crores.
So, I am not giving it by selling it.
I am not giving them money by selling it.
I gave my shareholders and one plant,
you take it and one plant, you take it,
worth 1.5 crores.
If you don't sell it,
but as it is, you pay
and give your asset,
in that case also it will be considered
as a dividend.
That is the point.
That if,
accumulated profits
are distributed in kind,
for example, by delivery of shares
entailing the release of company's assets,
market value
of such shares on the date of such distribution
is deemed as dividend
in the hands of the shareholders.
This is the point, friends.
And to what extent will it be considered?
As far as your profits of that year are concerned.
For example,
Profit of that year was 3 crore rupees
And the assets you sold, in our case I took 3 crore as an
example
Suppose you sell a machine for 5 crore rupees
And you distribute 5 crore rupees
Sometimes genuine cases also happen
It is not necessary that every transaction is made to
commit fraud
So there you have to think whether it is genuine or made to
commit fraud
So for that the government has made a provision that you
sell the assets
If you are distributing the assets to the extent of your
profit
Suppose you sold an asset worth 5 crore 5 crore has been
received, 5 crore has been given to the shareholders
Any problem? No?
So from that 5 crore we will assume that the profit was 3
crore
So we will assume that 3 crore is the dividend
What will we assume?
That 3 crore is the dividend
This is the dividend
And the remaining 2 crore rupees you have distributed to
your cash or assets
So nothing is going to be spent on this 2 crore
Because in a way you have distributed your assets
This 3 crore, we will assume it to be the dividend
You sell the assets
You sell the assets and receive the cash
You distribute the cash to your shareholders
So to the extent of profits in books
Like in this case it was 3 crore
So we will assume it to be the dividend of 3 crore
The dividend will be taxable in the hands of the
shareholders
The remaining 2 crore will not be taxable
Any problem?
It is a very simple point
There are some complex transactions in real life
But if your basics are clear
Then you will not face any problem
See for yourself
Any problem?
Now you will get 3-4 such cases
There is a point number
Distribution of debentures or deposit certificates to the
shareholders
And bonus shares to the preferential shareholders
To the extent of accumulated profits
Now as far as accumulated profits will be
As far as accumulated profits will be
The dividend will not be considered taxable
It will be considered as you have genuinely distributed
Come to point C
Distribution on liquidation
When is this happening?
Is this a regular transaction?
Am I distributing it normally or how?
He is saying distribution on liquidation
What does liquidation mean?
We know what liquid is
I have told you what liquid is
What is liquidation?
Liquidation means when the company is winding up
When the company has reached the point of shutting down
When the company is going through a downfall
That is called liquidation
For example, ABCLA was Mr.
Bachchan's company
Amitabh Bachchan Corporation Limited
In 1997-98, the company suffered a huge loss
The company was on the verge of shutting down
There are many such companies in India
Recently you must have heard of Yes Bank
It is also going through a bad phase
These things have reached the point of liquidation
There are many such companies
In that case, the assets that are being distributed
The cash that is being distributed
Let's talk about that
The regular transactions that we used to do
Like if we get 3 crores, we distribute it
That will be covered at point A
If you distribute the bonus share to the preference people
That will be covered at point B
What is point C?
When the company is going through a downfall
And at that time I distribute something
Then that will come here
Come here
Distribution made to the shareholders
On liquidation
To the extent
To which the distribution is attributable
To the accumulated profits of the company
Immediately before liquidation
Is deemed to be the dividend income
All the books that had profits
Before the downfall
If you are distributing that much money
In any form
Then the dividend that you will distribute on it
That is normal
It is the same, the points are the same
Nothing is different
Only the situation is different
Dividend Whether you accept it or not
We will accept it
And once we accept it
Then you will have to pay tax on it
You will have to show it in your return
Your tax will be deducted from the bank account
This is it
Come with me
Point number
D This point has been made
For the smart people
Do you understand smart?
The people who eat pedas
What kind of language is this?
Friends, it is the effect of the company
What else?
I live in the company of you
So the language is also like this
D point says
On the reduction of capital
A person says
For example, if you have read accounts
You will have basic knowledge of accounts
For example
This is the capital of a company
Of 100 crores
And at the end of this year
The profits of this company
Will be of 70 crores
Capital of 100 crores
Profits of 70 crores
What is to be divided?
Profits If I divide the profits
What form will it take?
Dividend The shareholder will get taxable
So what do we do now?
People have planned
We will show that
We have reduced our capital
How much have we reduced?
If 70 crores are to be divided
Show the capital of 30 crores
And tell them
The capital that we have given
We are giving it to you
Or if we reduce the capital
They are giving you the money
The government said
Good days
We were saying that we will bring it
But if you are going to run at this speed
Good days
What should I say?
Our mission
After the tax collection
To become a shareholder
You are defeating all this
You are stealing
Ultimately you have to divide the profits
You have let the profits stand
In the books
And you have reduced 70 crores
Ultimately there is still no effect on the total
Total Earlier it was 170
Right sir?
And I had to divide 70
After that how much was left? 100
This was left
Now how much is left?
I have reduced 70
This is 30
And I have still let the profits stand
I am showing the government
That I am a decent person
I have kept my profits standing
I have not divided the dividends
I have just divided the capital
What will be the total here? 30 and 70? 100? The government
says
The point is
We will consider this as a dividend
Come to point no.
Did you understand?
Point no.
D says
Any distribution to the shareholders
By a company
On the reduction of capital
To the extent to which
Company possesses
Accumulated profits
Shall be deemed as dividend
Keep this in mind
To the extent of
Accumulated profits
There are profits of 3 crores
And if you are distributing 5 crores
Then The distribution of 3 crores
We will consider that as a dividend
We will assume that you were stealing there
And you were trying to save this
Dividend Then we will assume that 3 crores
Is a dividend
And it will be taxable to the shareholders
But we will separate the 2 crores
Is the point clear? 4 sections 222 A, B, C and D 222 A, B,
C and D 222 A, B, C and D 222 A, B, C and D