The Finance Act, 1987-Explanatory Notes on the provisions relating to direct taxes

Deemed dividend rules expanded to tax loans and advances to smaller shareholders and concerns, preventing distribution avoidance.

The Finance Act, 1987 enacts wide ranging direct tax amendments: it sets tax and TDS rates, expands the definition of dividend to treat loans/advances to smaller shareholders and to concerns as deemed dividends, broadens the meaning of transfer to capture substantive transfers (including power of attorney and membership rights), reforms capital gains computation and carry forward rules, mandates timely employer crediting of employee fund contributions for deduction, introduces a minimum tax on company book profits, and strengthens TDS administration through tax deduction account numbers and revised TDS thresholds and timing.