What is Dividend Distribution Tax?

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

What is Dividend Distribution Tax?

What to study?

For Prelims and Mains: Meaning, significance, features and need.

Context: Dividend Distribution Tax shifted to individuals instead of companies, says FM.

What is it?

It is a tax levied on dividends that a company pays to its shareholders out of its profits.

How is it applied?

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.

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.

Sources: the Hindu.