Section 80M Reintroduced in Income Tax Bill 2025: What It Means for Indian Corporates
Section 80M is back—and this time, it may help thousands of Indian companies save big on taxes. The Income Tax Bill 2025, soon to be tabled in the Lok Sabha, includes a key amendment proposed by a parliamentary panel: the reintroduction of Section 80M to eliminate double taxation on inter-corporate dividends.
Let’s break it down simply—and explain why this matters for your company’s bottom line.
Why Section 80M Matters
Before 2020, dividend income was taxed under the Dividend Distribution Tax (DDT) system. But after DDT was scrapped, dividends became taxable in the hands of shareholders—including companies receiving dividends from their subsidiaries.
This led to double taxation:
- Subsidiary pays corporate tax on profits
- Holding company pays tax again on same profits as dividend income
Section 80M, when earlier in force, allowed companies to deduct dividends received from other domestic companies if those were further distributed. Its removal in 2020 (post-DDT regime) created cascading tax burdens, especially in multi-tier corporate structures.
What the Income Tax Bill 2025 Proposes
The Parliamentary Standing Committee on Finance has recommended reinstating Section 80M to address:
- Tax equity issues in corporate groups
- Cash flow blockages for businesses with interlinked subsidiaries
- Unfair burden on India Inc. as highlighted in the OECD 2024 review
The amendment will allow companies to claim a deduction equal to the amount of dividends received from other Indian companies—if redistributed as dividends within the same financial year.
Key Features of Proposed Section 80M
| Provision | Details |
|---|---|
| Eligible Deduction | Dividend income received from other domestic companies |
| Condition for Deduction | Must redistribute the dividend in the same FY |
| Benefit | Prevents double taxation on inter-corporate dividends |
| Applies To | Indian companies (not individuals or foreign companies) |
| Expected Relief | ₹10,000 crore+ savings industry-wide, per Ministry of Finance estimates |
Practical Example
Let’s say:
- Company A owns 100% of Company B
- Company B earns ₹1 crore profit and pays 25% corporate tax
- It pays ₹75 lakh as dividend to Company A
- Under current law, Company A pays ~30% tax again on ₹75 lakh
- With Section 80M, if Company A redistributes ₹75 lakh as dividend to its shareholders, it can claim full deduction, avoiding double taxation
Legal & Expert View
- The CBDT had earlier clarified (2020) that dividend income will be fully taxable post-DDT removal
- But no carve-out existed for inter-corporate dividends
- Experts from NIPFP (2021 study) flagged the lack of neutrality and disproportionate impact on corporate cash flow—up to 15% erosion in tiered groups
- With the return of 80M, tax neutrality is restored without needing the DDT system
Global Context
India was among the few countries taxing inter-corporate dividends twice, raising red flags in:
- OECD Tax Policy Review 2024
- Industry representations via CII and FICCI
- Start-up and PE-backed entities with layered shareholding structures
This reform brings India closer to global tax simplification standards.
How to Claim Deduction under Section 80M (Once Notified)
- Maintain board resolution and dividend distribution records
- Redistribute dividend before year-end (March 31)
- Claim deduction while filing the company’s ITR under relevant schedules
- Attach relevant documentation to support claim during tax audit or assessment
Impact on Business Planning
- Holding structures become more tax-efficient
- REITs, InvITs, NBFCs, and listed companies benefit
- Helps avoid re-routing funds via complex investment vehicles or offshore units
- Promotes direct dividend flow across corporate layers
Summary
Section 80M returns in the Income Tax Bill 2025 to eliminate double taxation on inter-corporate dividends. If a company redistributes received dividends in the same year, it can claim a full deduction—major relief for Indian corporates.
FAQs
Q1. Is Section 80M applicable to individuals?
No, it is only for Indian companies receiving dividends from other domestic companies.
Q2. What happens if the dividend is not redistributed in the same year?
Then, no deduction under Section 80M will be allowed.
Q3. Can foreign dividends qualify under 80M?
No, only domestic dividend income is eligible.
Q4. When will this change become effective?
Only once the Income Tax Bill 2025 is passed and notified—likely post-Monsoon Session.
Final Takeaway
The return of Section 80M is a smart correction that businesses have long demanded. It simplifies compliance, boosts cash flows, and aligns India’s tax laws with global norms.
Need help planning your tax strategy for FY 2025–26?
Efiletax can help you structure dividends smartly and save tax.