03-12-2009, 09:22 PM
Section 4, 5, 8, 94 of Income Tax Ordinance, 2001 (ITO) relate to dividend.
Section 4 sub section 4 states that
âCertain classes of income (including the income of certain classes of persons) may be subject to separate taxation as provided in sections 5, 6 and 7;â
Section 94 sub section 2 states that
âA dividend paid by a resident company shall be taxable in accordance with Section 5â
Section 5 states that
Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a company.
Section 8 states that
âThe tax imposed under section 5 shall be a final taxâ however it also states that âthe provisions of this section shall not apply to dividend received by a companyâ.
From all these section it is clear that dividend will be subject to tax separately and applicable tax rate would be @ 10% and this tax will not be final tax. So, it will be treated under normal tax regime and business losses can be set off against this dividend as section 56 sub section 1 states that
âwhere a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the personâs income, if any, chargeable to tax under any other head of income for the year.â
Please guide me whether my understanding related to dividend taxation is in accordance with Income Tax Ordinance, 2001.
Section 4 sub section 4 states that
âCertain classes of income (including the income of certain classes of persons) may be subject to separate taxation as provided in sections 5, 6 and 7;â
Section 94 sub section 2 states that
âA dividend paid by a resident company shall be taxable in accordance with Section 5â
Section 5 states that
Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a company.
Section 8 states that
âThe tax imposed under section 5 shall be a final taxâ however it also states that âthe provisions of this section shall not apply to dividend received by a companyâ.
From all these section it is clear that dividend will be subject to tax separately and applicable tax rate would be @ 10% and this tax will not be final tax. So, it will be treated under normal tax regime and business losses can be set off against this dividend as section 56 sub section 1 states that
âwhere a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the personâs income, if any, chargeable to tax under any other head of income for the year.â
Please guide me whether my understanding related to dividend taxation is in accordance with Income Tax Ordinance, 2001.