What is dividend distribution tax?

In India, a company which has declared, distributed or paid any amount as dividend is required to pay a dividend distribution tax at 15%. A dividend is a return given by a company to its shareholders out of profits made by it during a particular year.

·     This tax is to be paid by the company and not the investor.

·     Only domestic companies are liable to pay this tax. Holding companies need to pay DDT for their subsidiary if the subsidiary is a foreign company and have declared dividend.

·     The tax on the dividends is paid to the government within 14 days from the date of:

(i)Declaration of any dividend; or

(ii)Distribution of any dividend; or

(iii)Payment of the dividend

whichever is earliest among the three.

·     Dividend received from foreign company is taxable when it is in the hands of investors.

·     For debt mutual funds, asset management companies pay DDT from the distributed income at the rate of 28.33%.

·     However, on DDT is levied for equity mutual funds.

·     Section 1150 has amended and made some changes. Now DDT is to be paid on the gross value and not the net value. This increases the amount of tax to be paid as DDT.

·     Income by way of dividend in excess of 10 lakhs would be chargeable to tax at 10% if received by individuals, HUF, partnership firms and private trusts.

Dividend distribution tax is a tax, imposed by the Indian government, which is to be paid at 15% by any company which has declared or distributed an amount as dividend.

Some features of DDT are:

• This tax is not required to be paid by an investor, just the company*
• The provisions for DDT were introduced by the Finance Act 1997
• Only domestic companies are liable to pay this tax
• Domestic companies are liable to pay DDT even if they are not liable to pay any tax on their income
• The effective tax rate for dividend distribution comes up to about 20% after surcharge and cess are added to the gross amount
• Tax is paid by the parent company on the income of the subsidiary, if the subsidiary is a foreign company

*Income from dividends in excess of 10 Lakhs is chargeable at a rate of 10% for individuals, Hindu Undivided family or partnership firms

In India, when a company declares or distributes dividends to its shareholders, it has to pay 15% tax. This tax is known as Dividend Distribution Tax or DDT. No, mutual fund investors do not have to pay dividend distribution tax.

• For example, if company declares dividend of Rs. 100 per investor. It has to pay Rs.15 per dividend per investor.
• The tax on the dividends is paid to the government within 14 days from the date o :
• (i)Declaration of any dividend; or
• (ii)Distribution of any dividend; or
• (iii)Payment of the dividend whichever is earliest among the three.
• The amount of dividend received by the shareholders from a domestic company is not included as it is exempted under S.10 (34) of the Income Tax Act.
• On the other hand, dividend received from foreign company is taxable when it is in the hands of investors.
• For debt mutual funds, asset management companies pay DDT from the distributed income at the rate of 28.33%.
• However, on DDT is levied for equity mutual funds.
• Surcharge and cess are also levied on the dividend distribution tax. Hence, the net effective dividend distribution tax is higher around 20%.

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