A closely held company has ₹7 lakh in accumulated profits. It indirectly makes a covered ₹8.50 lakh payment for the individual benefit of a 70% voting shareholder. No statutory exclusion applies.…
Question and options
A closely held company has ₹7 lakh in accumulated profits. It indirectly makes a covered ₹8.50 lakh payment for the individual benefit of a 70% voting shareholder. No statutory exclusion applies. How much is treated as deemed dividend?
₹8,50,000
₹7,00,000
₹8,00,000
Nil
Answer and explanation
Section 2(40)(e)(iii) of the Income-tax Act, 2025 treats as dividend a payment by a company in which the public is not substantially interested on behalf of, or for the individual benefit of, a shareholder with at least 10% of the voting power, but only to the extent of the company's accumulated profits. The deemed dividend is therefore ₹7 lakh, not the full ₹8.50 lakh.
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