Dividend Distribution Tax comes back to haunt Cognizant, I-T department attaches bank accounts; 3 things to know

By: | Updated: March 28, 2018 11:18 AM

Over a dispute regarding alleged evasion of DDT in excess of Rs 2,500 crore, the income tax department has attacked bank accounts and deposits of IT major Cognizant in Mumbai and Chennai.

Cognizant, Bolder Healthcare Solutions, revenue cycle management, hospitals, healthcareIt was in December last year that the company announced a 0 million accelerated share repurchase program.

Over a dispute regarding alleged evasion of DDT (dividend distribution tax) in excess of Rs 2,500 crore, the income tax department has attacked bank accounts and deposits of IT major Cognizant in Mumbai and Chennai. The company has been accused of evading DDT and other charges. The income tax department also has plans to prosecute the company for alleged fraudulent expense claims for three years with Economic Offences court in Chennai. The shares of NASDAQ-listed company $80.08 down 1.90 percent on Tuesday. Here are the key things to know from the entire episode:

1.The tax authorities have raised these claims after the company carried out a share buyback in 2016. The income tax authorities claim that the company has paid only face value of Rs 10 from share capital. The authority also alleged that the company paid the entire balance from the collected profit which was actually dividend on which Rs 2,500 crore of DDT was not paid.

2. The income tax department has also charged the firm of distributing the dividends to its parent company in FY17, which should have been subjected to DDT at 20 percent of the total dividends paid by it.

3. The authorities also claimed that Cognizant didn’t deduct tax on the remittances to Mauritius company, however, it deducted 10 percent TDS to the remittances paid to the US company.

It was in December last year that the company announced a $300 million accelerated share repurchase program which was a part of its plan to carry out buyback of $1.2 billion of share in 2018.

Despite the action by the income tax authorities, the company maintains that its operations  have not been impacted. Cognizant also maintains that the actions taken by the income tax department are contrary to the law and doesn’t hold any merit as the company has paid all the applicable taxes which were due against its name. Cognizant has holding firms registered in Mauritius and its headquarters are situated in the US.

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