Inter-Corporate Dividend Deduction 2026-27: Section 148 of the Income Tax Act 2025
Section 148 of the Income-tax Act, 2025 lets a domestic company deduct dividends it receives from another domestic company, a foreign company or a business trust, up to the amount of dividend it passes on to its own shareholders. The passing-on must happen at least one month before the due date for filing its return under section 263(1). The deduction is allowed only once for any given amount of distributed dividend.
The point of the rule is to stop the same dividend being taxed again at every company in a holding chain. This guide covers who can claim it, how the limit works, the timing test, worked examples, and the mistakes that cost the deduction. All text is taken from section 148 and section 263(1) of the Act as amended by the Finance Act, 2026. This is information, not tax advice.
What is the inter-corporate dividend deduction under section 148?
If the gross total income of a domestic company for a tax year includes dividend income from the sources below, the company gets a deduction (section 148(1)):
| Source of dividend (section 148(1)) | Clause | Counts for the deduction? |
|---|---|---|
| Any other domestic company | (a) | Yes |
| A foreign company | (b) | Yes |
| A business trust | (c) | Yes |
| Any other payer (not listed above) | - | Not under this section |
A "business trust" is defined in section 2(21) as a trust registered as an Infrastructure Investment Trust (InvIT) or a Real Estate Investment Trust (REIT) under the SEBI regulations. "Dividend" has the wide meaning given in section 2(40), which includes, for example, a distribution of accumulated profits that releases assets to shareholders. A "domestic company" is defined in section 2(42).
Who can claim the deduction?
Only a domestic company. The section does not mention individuals, HUFs, firms or LLPs, so they cannot use it. A foreign company receiving dividends is also outside the section, because the claimant must be a domestic company.
How much is the deduction?
The deduction is the lower of two amounts:
- The dividend received from the sources in clauses (a), (b) and (c), and
- The dividend the company itself distributed at least one month before the due date for filing its return under section 263(1).
In the text of section 148(1), the deduction equals the dividends received "as does not exceed the amount of dividend distributed" by the company within that time.
What is the one-month timing rule?
The company's own dividend must be distributed at least one month before the due date for filing the return under section 263(1). For a company, section 263(1)(c) (Table, Sl. No. 2) sets the due date at 31 October of the financial year following the tax year, where section 172 does not apply. Where section 172 applies, the Table gives 30 November.
Treat 30 September 2027 as the last safe day for a company with a 31 October 2027 due date. The Act says "at least one month before", so distributing a few days earlier removes any doubt about counting the month.
Can the same distributed dividend be used twice?
No. Under section 148(2), once a deduction has been allowed for an amount of dividend the company distributed, no deduction is allowed for that same amount in any other tax year. A Rs 10,00,000 distribution can shield Rs 10,00,000 of received dividend once, not again next year.
Worked example 1: distribution is lower than dividends received (tax year 2026-27)
Assumptions: Alpha Traders Pvt Ltd is a domestic company. Its due date is 31 October 2027. It distributes its own dividend on 18 August 2027.
| Step | Item | Amount (Rs) |
|---|---|---|
| 1 | Dividend from a domestic company (clause (a)) | 12,00,000 |
| 2 | Dividend from a foreign company (clause (b)) | 3,00,000 |
| 3 | Dividend from a business trust (clause (c)) | 1,00,000 |
| 4 | Total received (1 + 2 + 3) | 16,00,000 |
| 5 | Own dividend distributed on 18 Aug 2027 (before 30 Sep 2027) | 10,00,000 |
| 6 | Deduction = lower of step 4 and step 5 | 10,00,000 |
| 7 | Received dividend left in gross total income (4 - 6) | 6,00,000 |
Worked example 2: part of the distribution is too late (tax year 2026-27)
Assumptions: Beta Holdings Pvt Ltd receives Rs 15,00,000 of dividends from a domestic company. Due date for its return is 31 October 2027. It pays Rs 12,00,000 to shareholders on 10 August 2027 and a further Rs 8,00,000 on 20 October 2027.
| Step | Item | Amount (Rs) |
|---|---|---|
| 1 | Dividend received | 15,00,000 |
| 2 | Distributed on 10 Aug 2027 (qualifies) | 12,00,000 |
| 3 | Distributed on 20 Oct 2027 (less than one month before 31 Oct 2027, does not qualify) | 8,00,000 (ignored) |
| 4 | Deduction = lower of step 1 and step 2 | 12,00,000 |
| 5 | Received dividend left in gross total income (1 - 4) | 3,00,000 |
The Rs 12,00,000 now counts as used under section 148(2). It cannot support a deduction in a later tax year.
Real-life example 1: Meena's holding company
Meena runs Meena Holdings Pvt Ltd, which owns shares in an operating company. Each year the operating company pays Meena Holdings a dividend, and Meena Holdings pays most of it on to Meena and her family as shareholders. Because Meena Holdings distributes the money onward well before its filing deadline, the dividend is deducted at the company level, up to the amount it passed on. The part it keeps stays in its gross total income.
Real-life example 2: Ravi, an individual shareholder
Ravi holds shares directly in a company and receives a dividend. He is an individual, not a domestic company, so section 148 does not apply to him. Ravi could not use this deduction even if he forwarded the money to his own family. His dividend is treated under the rules for his own return; see our guide on dividends and deemed income under the Income Tax Act 2025.
Does section 148 work if the company opts for the 22% rate?
Yes. A domestic company that opts for the 22% rate under section 200(1) must compute income without Chapter VIII deductions, but section 200(1)(a)(ii) carves out sections 146 and 148. Section 201(3)(a)(ii) makes the same exception for new manufacturing companies. So the dividend deduction survives under these concessional rates.
Can expenses be deducted against the dividend income?
No. Section 93(2) says no deduction is allowed against dividend income, including interest or commission paid to earn it. Section 148 therefore works on the gross dividend, and the full received amount sits in gross total income before the deduction.
Common mistakes
- Distributing too close to the due date. A payout in the last month before the return due date does not count.
- Claiming the full received dividend. The deduction stops at the dividend the company itself distributed.
- Reusing the same distribution in a later year. Section 148(2) blocks a second deduction on the same amount.
- Assuming non-companies qualify. Firms, LLPs, HUFs and individuals are not covered by the section.
- Netting expenses against dividend. Section 93(2) bars any deduction against dividend income, so do not reduce the received amount for interest or costs.
- Using the wrong due date. The cut-off is tied to the section 263(1) due date that applies to the company, so check whether 31 October or 30 November applies.
Quick reference
| Point | Rule | Source |
|---|---|---|
| Who claims | Domestic company | Section 148(1) |
| Dividend from | Domestic company, foreign company, business trust | Section 148(1)(a), (b), (c) |
| Deduction limit | Lower of dividend received and dividend distributed in time | Section 148(1) |
| Distribution deadline | At least one month before the return due date | Section 148(1) |
| Return due date (company) | 31 October (30 November where section 172 applies) of the following financial year | Section 263(1)(c), Table Sl. No. 2 and 1 |
| Same amount in another year | Not allowed | Section 148(2) |
How can a CA firm keep track of this?
The work is mostly calendar discipline: which corporate clients receive dividends, what they plan to distribute, and the cut-off date that sits a month before each return deadline. Finexo's practice management software lets a CA firm track due dates and tasks across the client book. It does not compute the deduction or file the return for you. For the return deadlines themselves, see our guide on who must file an income tax return and the due dates.
Where this is in the Act
- Section 148(1): deduction for dividends from domestic companies, foreign companies and business trusts
- Section 148(2): no second deduction for the same distributed amount
- Section 263(1)(c), Table: due date of return for a company
- Section 200(1)(a)(ii) and 201(3)(a)(ii): section 148 allowed under concessional company rates
- Section 93(2): no deduction against dividend income
- Section 2(21), 2(40), 2(42): business trust, dividend, domestic company
Frequently Asked Questions
Which companies can claim the inter-corporate dividend deduction?
Only a domestic company whose gross total income includes dividends from another domestic company, a foreign company or a business trust (section 148(1)).
How much is the deduction under section 148?
It is the lower of the dividend received from those sources and the dividend the company distributed at least one month before its return due date.
What is the cut-off date for distributing the dividend?
At least one month before the due date under section 263(1). For a company where section 172 does not apply, the due date is 31 October, so distribute by about 30 September of that year.
Can I claim the same distributed dividend again next year?
No. Section 148(2) says that once a deduction is allowed for an amount distributed, it cannot be allowed for that amount in any other tax year.
Can an individual or a firm claim this deduction?
No. Section 148 is written for a domestic company only.
Is the section 148 deduction available under the 22% concessional rate?
Yes. Sections 200(1)(a)(ii) and 201(3)(a)(ii) exclude section 148 from the Chapter VIII deductions that are barred under those rates.
Can I reduce dividend income by interest or other expenses?
No. Section 93(2) allows no deduction against dividend income, so the deduction under section 148 is worked out on the gross dividend.