# Dividend Income — Taxability and Allowable Deductions
## Taxability of Dividend
- Dividend includes:
- Actual Dividend (declared / paid by company)
- Deemed Dividend (covered under Section 2(22))
- In the hands of Shareholders: Fully Taxable under IFOS
- In the hands of Payer Company: Exempt (No Dividend Distribution Tax — DDT abolished w.e.f. 1.4.2020)
## Deduction of Expenses against Dividend Income
- Only interest expense is allowed as deduction.
- Maximum deduction = 20% of dividend income.
- No other expense (commission, remuneration, etc.) is deductible.
## Categories of Deemed Dividend [Section 2(22)]
| Clause | Distribution |
|---|---|
| 2(22)(a) | Distribution of company's assets to shareholders (to the extent of Accumulated Profits) |
| 2(22)(b) | Distribution of debentures, deposit certificates to shareholders & bonus shares to preference shareholders (to the extent of Accumulated Profits) |
| 2(22)(c) | Distribution on liquidation (to the extent of Accumulated Profits) |
| 2(22)(d) | Distribution on reduction of capital (to the extent of Accumulated Profits) |
| 2(22)(e) | Loan or advance by a closely held company to its shareholder (to the extent of Accumulated Profits) |
| 2(22)(f) | Payment by company on buyback of shares to its shareholders |