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Under Section 80M of the Income Tax Act, a domestic company can reduce its taxable income by the amount of dividend it receives from another domestic company, foreign company, or business trust, as long as it distributes that income (or a portion of it) to its own shareholders within the statutory time limit.
It was reintroduced via the Finance Act, 2020, after the removal of the Dividend Distribution Tax (DDT) regime, and applies to dividends distributed on or after April 1, 2020 (Assessment Year 2021‑22 onwards). Understanding eligibility, conditions, and calculation under Section 80M is crucial for companies handling multi‑tier dividend flows and planning cash‑out structures.
Key Takeaways
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Section 80M helps domestic companies reduce double taxation on inter‑corporate dividend income.
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Deduction = lower of dividend received from another domestic company/foreign company/business trust, and dividend distributed within the prescribed timeline.
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Dividend must be distributed at least one month before the due date for filing the return under Section 139 (1) of the Income Tax Act, 1961 (Section 263 (1) under the Income Tax Act, 2025).
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The deduction, if claimed, must be availed in the relevant year itself and cannot be carried forward.
What Is Section 80M of the Income Tax Act?
Section 80M provides a deduction in respect of certain inter‑corporate dividends. As per the Income‑Tax Department’s authoritative text, if the gross total income of a domestic company includes dividend income from another domestic company, the Act allows a deduction of an amount equal to the lower of:
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The dividend income from that domestic company, foreign company, or business trust, or
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The dividend distributed by the recipient domestic company on or before the “due date” (i.e., one month prior to the due date for filing the return under Section 139(1)).
Also Read About: What is Dividend Investing?
Applicability of Section 80M
Section 80M of the Income Tax Act applies to domestic companies that receive dividend income from domestic companies, foreign companies, or business trusts (such as REITs and InvITs) and further distribute dividends to their shareholders.
The deduction is allowed only if the company distributes such dividends within the prescribed time limit. This provision applies to dividends distributed on or after April 1, 2020 (Assessment Year 2021–22 onwards).
Also Read About: Difference Between REIT and InvIT
What are Inter-Corporate Dividends?
Inter-corporate dividends refer to dividends paid between companies. This happens when one company receives a dividend due to its ownership of shares in another company.
Who Is Eligible To Claim Benefits Under Section 80M?
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Eligibility: Section 80M of the Income Tax Act is designed for Indian companies that receive and pay dividends. If a company receives dividends from another Indian company and subsequently pays dividends to its shareholders, it can claim a tax deduction.
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Condition: To qualify for this deduction, the company must distribute the dividend within the prescribed timeline before filing its income tax return.
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Effective Date: This rule applies to dividends distributed on or after April 1, 2020, beginning with the assessment year 2021-22.
What Types of Income Are Covered Under Section 80M?
Section 80M covers dividend income received by a domestic company. As of the latest Income Tax Department text, the section applies where the gross total income of a domestic company includes dividends from another domestic company. The deduction is then allowed to the extent the recipient company distributes that dividend by the due date.
Covered income is dividend income received from
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Another domestic company
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A foreign company, or
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A business trust (such as a REIT or InvIT)
For the reintroduced Section 80M version used in current articles, the deduction framework is commonly described as applying when a domestic company receives dividend income and passes it on to shareholders within the prescribed time.
Purpose of Reintroducing Section 80M
Before Section 80M:
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Section 80M existed earlier but was removed when the Dividend Distribution Tax (DDT) was introduced in 2003.
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Under the old Section 80M (pre-2003), only holding-subsidiary structures could claim relief, and the deduction was available only for dividends from domestic companies.
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DDT made it easier to collect tax by taxing dividends at the company level, avoiding the need to track individual shareholder dividends.
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Under DDT, dividends were taxed at distribution and were tax-exempt for shareholders.
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Despite certain relief provisions under the DDT system, multiple layers of dividend distribution could still increase the tax burden in corporate structures.
After Reintroducing Section 80M:
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Section 80M was reintroduced after the removal of the Dividend Distribution Tax system, shifting the tax liability on dividends to the recipient.
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With better technology, tracking dividend income became possible, making DDT unnecessary.
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The new Section 80M allows all domestic companies, not just those in holding-subsidiary relationships, to claim a deduction on dividend income, reducing the chances of double taxation.
Quantum of Tax Deduction Under Section 80M
Under Section 80M, domestic companies can claim a deduction based on the lesser of:
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The amount of dividend received from another domestic company, a foreign company, or a business trust; or
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The amount of dividend distributed by the company to its own shareholders at least one month before the due date for filing the income tax return.
Also Read About: What is Income Tax Return (ITR) in India?
How to Calculate Deduction Under Section 80M?
The deduction under Section 80M is calculated by comparing the dividend received by a domestic company with the dividend it further distributes to its shareholders within the prescribed time limit. The company can claim a deduction for the lower of these two amounts.
For example, suppose a company receives a dividend of ₹12 lakh from another domestic company and later distributes ₹8 lakh as dividend to its shareholders. In this case, the deduction allowed under Section 80M will be ₹8 lakh, since it is the lower amount. However, if the company distributes the full ₹12 lakh, then the entire amount can be claimed as a deduction. This mechanism helps reduce the impact of double taxation on dividend income.
Deduction Under Section 80M
Section 80M allows a domestic company to claim a deduction on dividend income received from another domestic company if the dividend is further distributed within the prescribed timeline.
To claim the deduction under Section 80M, the following conditions should be satisfied:
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The dividend income must form part of the company’s total taxable income.
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The company should redistribute the dividend to its shareholders within the prescribed timeline.
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The deduction amount cannot exceed the dividend distributed by the company.
This provision helps reduce the impact of double taxation on inter-corporate dividend income and supports smoother tax compliance for companies.
Documentation Requirements for Claiming Deductions Under Section 80M
To claim deductions under Section 80M of the Income Tax Act, 1961, which applies to dividends received from domestic companies, you'll need to ensure you have the right documentation:
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Proof of Dividend Receipts: Ensure you have proper documentation showing the dividends you've received from domestic companies. This could be in the form of bank statements or dividend certificates.
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Accurate Calculation: Carefully calculate the deduction amount as per the provisions of Section 80M. You must know the eligible deduction and the applicable rules to avoid errors.
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Filing Requirements: When filing your income tax return, make sure to include all necessary details related to Section 80M deductions. Fill out the ITR forms correctly and attach the supporting documents.
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Bank Statements: Keep a record of bank statements or other transaction proofs related to the dividend income received by the company.
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Dividend Declarations: Sometimes, you might need statements or certificates from the companies that issued the dividends to validate the amounts received.
Procedure for Computing Deduction Under Section 80M
Computing the deduction under Section 80M involves a simple process, but companies must carefully track both dividend receipts and dividend distributions to claim the correct deduction amount.
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Calculate the total dividend income received from another domestic company during the financial year.
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Determine the amount of dividend distributed by the company to its shareholders within the prescribed timeline before filing the income tax return.
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Compare both amounts carefully to identify the lower value.
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Claim the deduction under Section 80M only for the lower of the dividend received or the dividend distributed.
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Maintain proper dividend records, financial statements, and distribution details to support the deduction claim during tax filing.
Following the correct procedure helps companies avoid calculation errors and ensures smoother compliance while claiming deductions under Section 80M.
How Does Section 80M Help Businesses?
Section 80M helps domestic companies manage dividend taxation more efficiently and reduce unnecessary tax burden.
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Reduces the burden of double taxation on inter-corporate dividend income.
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Helps companies lower their taxable income through eligible dividend deductions.
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Improves cash flow management by reducing unnecessary tax outflow.
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Encourages better dividend distribution planning within corporate groups.
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Creates a more transparent and structured dividend taxation system.
By simplifying the treatment of dividend income, Section 80M supports better tax compliance and helps businesses handle corporate taxation in a more practical and efficient manner.
Conclusion
Section 80M remains an important provision for domestic companies dealing with dividend income, as it helps reduce the impact of double taxation and improves overall tax efficiency. By allowing eligible deductions on redistributed dividends, the provision supports smoother corporate tax planning and better financial management.
Understanding the eligibility conditions, deduction limits, and calculation process is essential for companies looking to maintain accurate tax compliance. With the shift from the Dividend Distribution Tax system to shareholder-based taxation, Section 80M continues to play a key role in creating a more transparent and practical framework for dividend taxation in India.
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