Deemed dividend rules cover loans or advances to substantial shareholders and related concerns from accumulated profits.

Under deemed dividend rules in clause (22)(e) of section 2 of the Income-tax Act, 1961, a payment by a company in which the public are not substantially interested is treated as deemed dividend where, after 31 May 1987, the company makes an advance or loan to a shareholder who is the beneficial owner of shares carrying not less than ten per cent of the voting power, or to a concern in which such shareholder is a member or partner and has a substantial interest. The deeming fiction applies only to the extent of the company's accumulated profits.

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