Underlying tax

Tax Glossary Definition

Underlying tax

An underlying tax is a tax imposed on a company’s income, from which dividends are distributed to shareholders. Unlike dividend withholding tax, it is not directly deducted from the dividend but is part of the corporate tax liability.

Example: A company earns ₹10 lakh in profit and pays corporate tax on this income. After paying the tax, it distributes dividends to shareholders. The corporate tax paid is considered the underlying tax, even though no tax is directly deducted from the dividend itself.

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