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Deemed Dividend Checker — Section 2(22)(e)
Does your company loan or advance to a shareholder trigger deemed dividend?
Inputs
How it works
- Check if the company is closely-held using the s.2(18) test.
- Check whether the shareholder holds ≥10% voting power or the concern holds ≥20% interest.
- Check whether the amount is within accumulated profits.
- Apply the ordinary lending business or bona fide trade advance exception.
FAQs
What is deemed dividend?
A closely-held company makes a loan/advance to (a) a shareholder holding ≥10% of equity voting power, OR (b) a concern (firm/AOP/HUF) in which such a shareholder holds ≥20% beneficial interest
What is the 10% threshold?
10% of equity voting power (beneficial interest — includes shares held through nominees, relatives as per Explanation to s.2(22)(e), Income Tax Act 1961; deemed dividend under s.2(40)(e), Income-tax Act 2025)
How are accumulated profits tested?
Profits accumulated up to the date of loan — current-year profits (pro-rated to date) + earlier undistributed profits; does NOT include share premium or paid-up capital
What exceptions can apply?
Loan in ordinary course of business where lending money is a substantial part of the company's business; Trade advance for supply of goods or services — bona fide trade debt
Is TDS required?
Section 194, Income Tax Act 1961 (earlier; resident dividend TDS under s.393(1) Table Sl. 7, Income-tax Act 2025 from tax year 2026-27): 10% TDS on deemed dividend to resident individual/HUF shareholders. No TDS when dividend paid to a company shareholder. No TDS on deemed dividend under s.2(22)(a)-(d), Income Tax Act 1961, unless distributed.