Income Tax Bill 2025: FinMin may restore dividend deductions for 22% corporate tax regime
The Ministry of Finance is anticipated to change the Income Tax Bill 2025, which is currently in draft form. This change is to restore Section 80M advantages for the firms choosing the 22% concessional tax regime under Section 115BAA, ensure fair taxation, and remove the cascading tax burden on inter-corporate dividends.
According to one senior finance ministry officer, “This appears to be an inadvertent omission in the new income tax bill. We will address and rectify it, as taxing the same income twice goes against established principles of fair taxation.” The officials have asked for invisibility. At the time of reporting, the ministry had not yet given an official response.
Background: Concessional Tax Regimes and Section 80M
Currently, domestic companies are taxed at the following rates:
- 15%: For new manufacturing companies meeting specified conditions
- 22%: For companies opting out of exemptions and deductions under Section 115BAA
- 30%: For companies availing regular tax breaks
Section 80M was relaunched in 2020 after the removal of the Dividend Distribution Tax (DDT). It allows a company to avoid paying twice on the same dividend. If a firm receives a dividend from another Indian company and passes it on to its own shareholders, it does not have to pay tax on that income again.
However, the draft Income Tax Bill 2025 does not include Section 80M for the companies choosing the 22% lower tax rates, though it still applies to those paying tax at 15% or 30%. Numerous tax experts and industry are concerned, saying this amendment will result in double counting of taxes, once when the company receives the dividend and a second time when it’s given to shareholders.
Ministry Response
- After gathering feedback from industry bodies and tax professionals, the finance ministry has said that leaving out Section 80M for the 22% tax rate was a mistake.
Next Steps: Select Committee Review Underway
- The draft bill is currently under review by a Parliamentary Select Committee, which is expected to submit its recommendations on the first day of the upcoming Monsoon Session. If the amendment is accepted, it will mark a crucial course correction in India’s evolving tax architecture and reinforce the government’s commitment to clarity and equity in corporate taxation.
What’s Next
- A Parliamentary Select Committee is now reviewing the draft Income Tax Bill 2025. The committee is anticipated to give its suggestions at the start of the upcoming Monsoon Session. If the change is accepted, it will be an important step in making India’s tax system fairer and clearer for companies.