Section 2(22)(e) Taxes Loans as Dividends; 30% Dividend Tax from April 1, 2018, Applies to Companies

Section 2(22)(e) of the Income Tax Act treats loans or advances by a closely held company to certain shareholders or entities as dividends. This applies if the shareholder holds at least 10% voting power or is a member/partner with a substantial interest in a concern. The loans are deemed dividends to the extent of the company's accumulated profits. Repayment of the loan does not negate this classification. Companies must deduct 10% TDS on such deemed dividends. From April 1, 2018, deemed dividends are subject to Dividend Distribution Tax at 30%, making them tax-free for shareholders.