Although earlier corporates had to pay tax on the dividend income only to the extent they were not distributing as dividends (under Section 80M) but now the income from mutual funds will be totally tax free. Take for instance, Bajaj Auto. For 1997-98 the company recieved a dividend income of Rs 43.35 crore but it distributed equity dividend of Rs 95.51 crore thus it didn't have to pay any tax onincome recieved as dividends. Similarly, Hindalco recieved a dividend income of Rs 40.26 crore while distributed dividend stood at Rs 39.1 crore. While in the case of Bombay Dyeing the dividend income was at Rs 44.88 crore and dividend pay-out was Rs 14.3 crore, the company had to pay taxes on an amount of Rs 30.58 crore. The company has invested around Rs 351.81 crore in various mutual fund schemes. The company paid a tax of Rs 3.43 crore for 1997-98. Assuming that the company makes the same amount of profit this year there will be an additional outgo of Rs 34 lakh. While the company will be saving Rs 3 crore (10 per cent of Rs 30.58 crore) as dividend income is now tax free. Apart from the reduction in tax out-go, the companies would also be in a position to plough back more money into the business. The corporates will now have more flexibility to re-work their dividend policies. Since the corporates have to pay 10 per cent tax on the dividends that they distribute and now the dividend income recieved fromMFs is tax-free, it makes better buisness sense to retain more and pay less.