Tax deduction from dividends is mandatory for every Indian company or a company that declares and makes payment of dividends within India.
However, no tax shall be deducted from the payment of dividend to an individual shareholder, should the payment be made by any mode other than cash and the aggregate amount of dividend paid or distributed to him during a financial year does not exceed Rs 5,000.
According to online tax consultancy Taxmann, the relaxation from the deduction of tax is available if the dividend is paid by any mode other than cash.
Taxmann’s recommendation is that like other provisions, Section 194 should have the positive list of the permissible mode of payment, that is, an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be required.
A similar amendment is also recommended in Sections 80D, 80GGA, 80G and 36(1)(ib).
Bad debts should be deductible under section 57
The bad debts written off from the books of account is permitted as a deduction from the income taxable under the head ‘Profits and Gains from Business or Profession’. Whereas on the counterpart such a claim is not allowable while computing the income under the head ‘Income from other sources’.
According to Taxmann, the deductions allowable from the residuary income is specified in section 57.
Taxmann’s recommendations for the Union Budget 2021
“Income from other sources is a residuary head of income and sweeps in all such taxable incomes which fall outside the other four heads of income. Section 57 specifically provides the list of expenditure which are allowed to be deducted from the income taxable under the head of other sources. Such discriminatory provision causes hardships to the assessee. Thus, it is recommended that deduction for bad debts shall be allowed under section 57 while computing the income from other sources,” Taxmann notes.