CBDT FAQ Deep-Dive #9: Inter-Corporate Dividends Under Section 148 of the Income-tax Act 2025 (Successor to Section 80M)
If you run money through a holding company, one number decides whether the same rupee of profit is taxed once or three times on its way up to you: the inter-corporate dividend deduction. Under the old law that was Section 80M. From 1 April 2026 it is Section 148 of the Income-tax Act 2025, and the mechanics have been carried forward with the same purpose and one strict timing condition. This is chapter #9 of our CBDT FAQ Deep-Dive series, and it explains how the inter-corporate dividend deduction under Section 148 of the Income-tax Act 2025 works, who can claim it, and the mistake that quietly forfeits it.
Key Takeaways
- New home, same idea: Old Section 80M of the Income-tax Act, 1961 becomes Section 148 of the Income-tax Act 2025 (“Deduction in respect of certain inter-corporate dividends”), in Chapter VIII, effective for FY 2026-27 (AY 2027-28) onwards.
- What you get: A domestic company can deduct the dividend income it receives, capped at the amount of dividend it in turn distributes to its own shareholders.
- The timing trap: The onward distribution must be made at least one month before the due date for filing the return under section 263(1) of the Act 2025. Miss that and the deduction is lost for that dividend.
- Eligible sources: Dividends received from another domestic company, a foreign company, or a business trust.
- Anti-abuse: Once an amount of distributed dividend has been used to claim the deduction in one tax year, it cannot be claimed again in any other year.
Why the inter-corporate dividend deduction exists at all
Since the abolition of Dividend Distribution Tax, dividends are taxed in the hands of the shareholder, not the company paying them. That is clean for a single company, but it creates a cascading problem in a group. Imagine profit earned in an operating subsidiary, paid up as a dividend to a holding company, and paid again up to the individual promoters. Without relief, the same economic profit would be taxed in the holding company’s hands and again in the promoters’ hands, and in a three-tier structure, again in the middle.
The inter-corporate dividend deduction breaks that chain. It lets the intermediate company take a deduction for the dividend it received, to the extent it passes that money on. The result is that a pass-through dividend is taxed only once, at the top, in the ultimate shareholder’s hands. Section 148 of the Income-tax Act 2025 continues this relief without a break.
How Section 148 of the Income-tax Act 2025 works
The operative rule has three moving parts.
- The deduction: Where the total income of a domestic company includes income by way of dividends from another domestic company, a foreign company, or a business trust, it is allowed a deduction equal to that dividend income.
- The cap: The deduction cannot exceed the amount of dividend the company itself distributes to its shareholders on or before the cut-off date.
- The cut-off: That onward distribution must happen at least one month before the due date for furnishing the return of income under section 263(1) of the Act 2025.
In plain terms: you get relief on what you pass through, not on what you keep, and only if you pass it through in time.
A worked example of a two-tier holding structure
| Step | Amount | Tax effect |
|---|---|---|
| Operating Subsidiary pays dividend to Holding Co | Rs 100 | Received by Holding Co as dividend income |
| Holding Co redistributes to its shareholders before the cut-off | Rs 100 | Deduction under Section 148 = Rs 100 |
| Net taxable dividend in Holding Co | Rs 0 | No cascading; taxed only in shareholders’ hands |
Now change one fact. Suppose the Holding Co receives Rs 100 but distributes only Rs 60 before the cut-off. The deduction is limited to Rs 60. The retained Rs 40 is taxable dividend income in the Holding Co’s hands this year. The deduction rewards genuine pass-through and taxes what the intermediate company chooses to accumulate.
The one-month timing rule that forfeits the deduction
This is where advisers earn their fee. The distribution has to be completed one month before the return due date, not by the return due date itself. For a company whose return is due 31 October, the practical cut-off for the qualifying onward distribution is on or before 30 September. A dividend declared on, say, 15 October, even though it is before the return is filed, does not qualify for that year’s deduction. Board calendars for holding companies must be built backwards from this date, not from the filing date.
The no-double-deduction rule
Section 148 closes the obvious loophole. Where a deduction has been allowed in one tax year in respect of a particular amount of distributed dividend, no deduction can be claimed in respect of that same amount in any other tax year. You cannot recycle one onward distribution to shelter dividend income across two years. The match is one-to-one between the dividend received and the dividend passed on.
Who should be paying attention
- Founders with a holding-company structure: the deduction is what keeps your two-tier or three-tier structure tax-efficient. Losing it to a late distribution is an avoidable cost.
- CFOs and group controllers: the September-type internal cut-off must be a hard date in the group dividend policy.
- CAs advising family offices and promoter vehicles: the deduction applies to dividends from foreign companies and business trusts too, not only domestic subsidiaries, so the relief can reach cross-border and REIT/InvIT income.
Period-aware note (why the section number changed)
The Income-tax Act 2025 replaces the Income-tax Act, 1961 with effect from 1 April 2026. For FY 2025-26 and earlier assessment years, the governing provision remains Section 80M of the 1961 Act. For FY 2026-27 onwards it is Section 148 of the 2025 Act. The saving provisions of the new Act preserve positions taken under the old law, so a deduction validly claimed under Section 80M for an earlier year is not disturbed. Always cite the provision that governs the year you are working on.
For the earlier chapters in this series, see our deep-dives on scientific research and R&D under Section 45 (chapter #8) and the actual-payment deductions under Section 43B and MSME payments (chapter #7). If your dividends flow through an IFSC fund, see our round-up on GIFT City IFSC tax rules in 2026.
Frequently Asked Questions
Which section replaces Section 80M in the Income-tax Act 2025?
Section 80M of the Income-tax Act, 1961 is carried into Section 148 of the Income-tax Act 2025, titled “Deduction in respect of certain inter-corporate dividends”, in Chapter VIII, effective from 1 April 2026.
What is the maximum inter-corporate dividend deduction a company can claim?
The deduction is capped at the amount of dividend the company itself distributes to its shareholders at least one month before the due date for filing its return. If a company distributes less than it received, the deduction is limited to the distributed amount.
Does Section 148 cover dividends from foreign companies?
Yes. The deduction applies to dividend income received from another domestic company, a foreign company, or a business trust, subject to the same onward-distribution and timing conditions.
What is the timing condition for the deduction?
The onward distribution to the company’s own shareholders must be made at least one month before the due date for furnishing the return of income under section 263(1) of the Act 2025. A distribution made after that date does not qualify for that year, even if it is before the return is actually filed.
Can the same dividend be used to claim the deduction in two years?
No. Once a distributed amount has been allowed as a deduction in one tax year, it cannot be claimed again in any other year. The relief is a one-time match between the dividend received and the dividend passed on.
The bottom line
Section 148 keeps the inter-corporate dividend deduction alive under the new law, and for holding-company groups it is one of the most valuable single provisions in the Income-tax Act 2025. The substance is unchanged; the discipline it demands is not. Build your group’s dividend calendar around the one-month-before-due-date cut-off, distribute what you intend to shelter before that date, and keep a clean one-to-one record between dividends received and dividends passed on. Do that and the same rupee of group profit is taxed exactly once.
Structuring a holding company or planning your group’s dividend flow for FY 2026-27? Getting the Section 148 timing right is worth real money in a multi-tier structure. Talk to an expert at Tax Update India and we will map your dividend calendar against the new due-date cut-off so no deduction slips through.
Disclaimer: This article is for general information only and reflects Section 148 of the Income-tax Act 2025 as it stands for FY 2026-27 onwards; Section 80M of the Income-tax Act, 1961 continues to govern earlier years. The interaction with the concessional corporate tax regime should be confirmed against the enacted text for your specific facts. This is not tax advice. Sources: Income-tax Act 2025, Section 148 (Chapter VIII), cross-verified against structured section mappings, retrieved 28 August 2026; Income-tax Act, 1961, Section 80M.
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- CBDT FAQ Deep-Dive #9: Inter-Corporate Dividends Under Section 148 of the Income-tax Act 2025 (Successor to Section 80M) - August 28, 2026
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