Dividend distribution tax

Dividend distribution tax is the tax imposed by the Indian Government on Indian companies according to the dividend paid to a company's investors.

At present, the dividend distribution tax is proposed to be removed by government in financial annual statement 2020 according to the Union Budget of India.[1]

The company has to deposit DDT within 14 days of declaration, distribution or payment of dividend whichever is the earlier. In case of non-payment within 14 days, the company shall have to pay interest at the rate of 1% of the DDT.

As per existing tax provisions, income from dividends is tax free in the hands of the investor up to Rs 10,00,000 and beyond than tax is levied @10 percent beyond Rs 10,00,000. Further the dividends from domestic companies are tax-exempt, dividend from foreign companies are taxable in hands of investor. However, this is not to say that there is no tax levied at all. On the contrary, there is a levy of 15.00% of the dividend declared as distribution tax (Under Income tax Act, 1961). This tax is paid out of the profits/reserves of the company declaring the dividend. Additional surcharge of 12% on DDT and education cess of 4% is levied.

From 2016, the investors (resident in India) earning dividends above 10 lakhs per annum will have to pay an additional tax of 10%.[2]

The Mutual fund companies also have to pay DDT.The rates are as under: a) On Debt oriented funds - DDT shall be 25 percent. b) Equity-oriented funds - DDT shall be 10 percent. (Earlier this was exempt. This tax has been made applicable from Budget 2018).