New Section 80M – Deduction for Inter Corporate Dividend

new-section-80m-deduction-for-inter-corporate-dividend

The benefits of new Section 80M will be available to a domestic company in respect of dividend income received by it from other domestic companies during the previous year and distributed by it, one month before the due date of filing return. Finance Bill, 2020 has inserted a new section 80M as it existed before it was omitted by the Finance Act, 2003 to remove the cascading effect of dividend income.


Subsequent to the abolishment of Dividend Distribution Tax (DDT) from the statute, many consequential amendments have been carried out in certain other provisions of the Income Tax Act, including section 80M.

In order to eliminate the cascading effect of the dividend income, it is proposed to insert new section 80M as it existed before its removal by the Finance Act, 2003 to remove the cascading affect, with a change that set-off will be allowed only for dividend distributed by the company one month prior to the due date of filing of return, in place of due date of filing return earlier.

Clause 40 of the Bill seeks to insert new section 80M relating to deduction in respect of certain inter-corporate dividends.

Sub-section (1) of the new section 80M provides that where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends received from such other domestic company as does not exceed the amount of dividend distributed by the first mentioned domestic company on or before the due date.

Sub-section (2) of the new section 80M provides that where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.

It is further proposed to clarify the expression “due date” to mean the date one month prior to the date for furnishing the return of income under sub-section (1) of section 139.

This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.

Clause 40 of the Finance Bill, 2020 proposed to insert a new section 80M.

Deduction in respect of certain intercorporate dividends.

40. After section 80LA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2021, namely:–

80M. (1) Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends received from such other domestic company as does not exceed the amount of dividend distributed by the first mentioned domestic company on or before the due date.

(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.

Explanation.––For the purposes of this section, the expression “due date” means the date one month prior to the date for furnishing the return of income under sub-section (1) of section 139.’.

The deduction for receipt of dividend income is available if the same is received from a domestic company only - which may or may not be a subsidiary company. There is no requirement to be a holding and subsidiary company.

The deduction is available only when the computation of income is done under normal or general provisions of the Income Tax Act. No corresponding amendment is made in section 115JB to allow for such deduction for receipt of dividend income while computing the Book Profit for Minimum Alternate Tax or MAT under section 115JB. Hence, the dividend income will suffer MAT.

The newly incorporated section 115BAA and section 115BAB allows a domestic company / domestic manufacturing company to pay tax on its income at a concessional rate if a company does not claim certain deductions. One of the restrictions is the non-availability of deductions under Chapter VI-A of the Income Tax Act except section 80JJAA. Both these sections have been amended to allow for deduction under section 80M under Chapter VI-A along with section 80JJAA. Hence, a company that opted for a lower rate of tax under section 115BAA and section 115BAB can claim deduction under section 80M.

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