Undistributed profits tax

Tax Glossary Definition

Undistributed profits tax

Undistributed Profits Tax – This is an annual tax imposed on the portion of a corporation’s profits or surplus that is retained rather than distributed to shareholders as dividends. It is charged in addition to the regular corporate income tax.

Example: A company earns ₹50 lakh in profits and distributes ₹30 lakh as dividends. The remaining ₹20 lakh retained in the business may be subject to undistributed profits tax, in addition to the regular corporate tax already paid on total profits.

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