Section 80M Dividend Deduction: Relief for Indian Companies
The reinstatement of Section 80M dividend deduction in the revised Income Tax Bill, 2025 brings a major relief to corporate India. The move addresses a key concern—double taxation on inter-corporate dividends—that arose after the section was removed under the 22% corporate tax regime introduced in FY 2019–20.
Backed by recommendations from a key House Standing Committee, the change reflects the government’s attempt to maintain tax neutrality in layered corporate structures without overhauling the entire tax framework.
Why Section 80M Matters
Section 80M allows a domestic company receiving dividends from another domestic company to claim deduction for the amount it distributes as dividends in the same financial year. This provision prevents taxation of the same income at multiple corporate levels.
Without Section 80M:
| Level | Company | Tax Status |
|---|---|---|
| 1 | Subsidiary A | Pays tax on profit, distributes dividend |
| 2 | Holding B | Receives dividend, pays tax again on same income |
| Total | Double taxation |
With Section 80M:
| Level | Company | Tax Status |
|---|---|---|
| 1 | Subsidiary A | Pays tax on profit |
| 2 | Holding B | Receives dividend, claims deduction under 80M |
| Total | Tax neutral |
Timeline: What Changed?
- FY 2020–21: 22% concessional tax rate under Section 115BAA introduced
- Section 80M not included in this regime
- Raised concerns from holding companies and investors
- 2020–2024: Industry representations made to Finance Ministry and CBDT
- 2025: Parliamentary Standing Committee reviews 536 sections
- Recommends reinstating Section 80M after 36 committee sittings
- Aims to address cascading tax issues
- Monsoon Session 2025:
- Revised Income Tax Bill to include Section 80M
- Likely to be passed soon
Legal and Policy Angle
- Old Section 80M (pre-2003) existed under the Income-tax Act, 1961
- Reintroduced in Budget 2020, effective from AY 2021–22 (via Finance Act, 2020)
- Applicable only if dividend is redistributed within the same year
Note: With the new Income Tax Bill replacing the old Act, Section 80M’s continuity was unclear until this latest committee recommendation.
Expert View: What It Means for India Inc
“This reinstatement protects multi-layered companies from tax inefficiency. It’s a relief especially for investment holding firms, NBFCs, and conglomerates with dividend income flow,”
— CA Bimal Jain, Tax Expert
Practical Impact on Businesses
- Holding companies: Now assured of tax deduction on pass-through dividend income
- NBFCs and conglomerates: Benefit from more predictable tax planning
- Startups under corporate groups: Avoid potential tax hits when moving profits upward
How to Claim Section 80M Deduction (Post-Bill Passage)
Once enacted, companies must:
- Maintain clear dividend receipt and redistribution records
- Ensure dividend redistribution within the same financial year
- Claim deduction in the ITR filed for that assessment year
- Keep board resolution and proof of payment for audit/trial
Link to Government Source
Internal Link
Read more: New Income Tax Bill 2025: Key Highlights for Businesses
Summary
Section 80M is back in the Income Tax Bill 2025, letting companies deduct dividends received and redistributed within the year—preventing double taxation. This move, based on House panel recommendations, offers major relief for holding firms and layered company structures across India.
FAQs
Q1. Who can claim the Section 80M dividend deduction?
Only Indian companies receiving dividends from other Indian companies and redistributing them in the same year.
Q2. Is Section 80M applicable under the 22% corporate tax regime?
Yes, after the latest amendment in the 2025 Income Tax Bill, it will be.
Q3. Does the deduction apply to foreign dividend income?
No. Section 80M applies only to domestic inter-corporate dividends.
Final Word
The return of Section 80M dividend deduction reaffirms the government’s commitment to stable, industry-aligned tax reform. It prevents tax inefficiency for layered company structures and supports smoother dividend flows.