News:Union Budget has proposed to abolish the dividend distribution tax(DDT) at the company’s level.The dividend income will now be added to the taxable income of the recipient and taxed at the applicable rate.
About Dividend Distribution Tax(DDT):
- A dividend is a return given by a company to its shareholders out of the profits earned by the company in a particular year.They are usually given in proportion to the number of shares owned.
- Dividend distribution tax(DDT) is the tax imposed by the Indian Government on indian companies according to the dividend paid to a company’s investors.
Is Dividend Distribution Tax fair?
- Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits.
- It has been argued that the system of levying DDT results in an increase in tax burden for investors and especially those who are liable to pay tax less than the rate of DDT, if the dividend income is included in their income.
- Further, non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them.