Dividend Distribution Tax definition: The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits. The Dividend Distribution Tax, or DDT, is taxable at source, and is deducted at the time of the company distributing dividends. The dividend is the part of profits that the company shares with its shareholders. The law provides for the Dividend Distribution Tax to be levied at the hands of the company, and not at the hands of the receiving shareholder. However, an additional tax is imposed on the shareholder, who receives over Rs. 10 lakh in dividend income in a financial year.
Is Dividend Distribution Tax applicable to private companies?
Under Section 115-O, the Income Tax Act, any domestic firm which is declaring or distributing dividend has to pay DDT at the rate of 15 per cent on the gross amount of dividend. Successive governments have, from time to time, dabbled with imposing and removing Dividend Distribution Tax, according to the market conditions and need of the exchequer. The rates of tax and computation methodologies have also changed over the years. In Budget 2018, tax on equity-oriented mutual funds was introduced at the rate of 10 per cent.
When is the Dividend Distribution Tax paid?
The tax has to be paid to the government within 14 days of the dividend declaration, distribution or payment whichever is earliest.
- If DDT is not paid within the given time period, interest at a rate of 1 per cent per month or part thereof starts getting accumulated till the amount is paid. The tax is paid separately, over and above the company’s income tax liability.
- The income tax law doesn’t provide for any deduction or credit to the firm for paying the DDT.
- Similarly, a taxpayer gets no deduction with respect to any expenditure or allowance or set-off of loss under the Act in calculating the income through dividends.
Is Dividend Distribution Tax fair?
Market participants, especially brokers, have been calling for long to scrap the DDT. The tax makes markets unattractive as it leads to significant taxation of corporate earnings, they argue.
Other than Dividend Distribution Tax (DDT), the Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax are other major taxes levied on market instruments. Note that Finance Minister Arun Jaitley had introduced DDT on equity mutual funds in Union Budget 2018.