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Hello, i read somwhere that dividend credit can never create a refund. It was a bit confusing for me. Example,
Income Tax Liability = 500
Less tax deducted at source:
Dividend = (50)
Bank Interest = (600)
Income Tax Repayable = NILThe income tax repayable should have been (150)
but since there is the dividend credit, it becomes NIL . However, if there was only the Bank interest as a credit, the Income Tax Repayable would indeed be (100).
How far is this true?Thank you for clearing this up.
No – the income tax repayable in your example will indeed be 150 not nil. The notional tax credit on the dividend of 50 is deducted first from the tax liability, leaving 450 and then the tax credit for the bank interest is deducted which will then create a refund of 150. The issue is that the notional tax credit when deducted is not able to generate a repayment. Hence in your example above if the tax credit on the dividend income was 600 this would only be able to reduce the liability of 500 to nil, not create a repayment of 100! Any tax credit on the bank interest will however then be deducted and thus create a repayment.
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