Dividend Distribution Tax

As per the new rule, the dividends will be taxed to shareholders as per the current tax rate and slab. For example, if you as a shareholder fall in the 30% tax slab, the dividend earned by you will be subject to 30% taxation.

Who is Required to pay Dividend Distribution tax?

In India, the DDT was a tax levied on the dividends that companies paid to their shareholders. As per the old laws, the company was responsible for deducting and paying this tax on the gross dividend amount to the government.

Under the now-abolished DDT, a company issuing a dividend had to pay 15% of the gross dividend as tax, according to Section 115O of the Income Tax Act. Moreover, as per Section 2(22)(e) a 30% tax was stipulated on the deemed profits. The shareholder was exempt from paying tax on the dividend in this case.

When is DDT to be paid?

In general, DDT is paid within 14 days from the date of declaration, distribution, or payment of dividend, whichever is sooner.

Under the provisions of Section 115P of the Income Tax Act, the companies will be liable to pay interest at the rate of 1% from the date following the date of declaration of the DDT.

Dividend Distribution Tax Rates

While there is no tax on dividends when it comes to investors, there is a tax that the company will have to pay and it is paid at the rate of 15%. This rate will also apply to dividends that are distributed by a domestic company from the profits earned by its subsidiary that happens to be a foreign company.

Calculation of Dividend Distribution Tax

There are certain rules that are followed when assessing dividend distribution tax and they are mentioned in section 115-O of the IT Act. These rules are:

• The profits made by domestic subsidiaries of a company won't be included in the profit while computing the dividend distribution tax.
• If the subsidiary is a foreign company then a tax will be paid by the parent company on the income for the subsidiary.
• Dividends once taxed, cannot be taxed a second time.
• The DDT has to be paid to the government within 14 days of the declaration, distribution or payment of dividends.
• The responsibility for paying the tax lies with the company and the principal officer.

Special Provisions related to Dividend Distribution Tax

There are 3 special provisions in relation to DDT. These are listed below:

• Section 115-O: Tax on distributed profits of domestic companies.
• Section 115P: Interest payable for the non-payment of tax by domestic companies.
• Section 115Q: When the company is deemed to be in default.

Dividend Distribution Tax on Mutual Funds

DDT is applicable to mutual funds and the details of the same can be summed up as follows:

1. The rate applicable to debt-oriented funds is 25%, which goes up to 29.12% when cess and surcharge is included.
2. The dividend which is received by the investors is exempt in the hands of the fund-holder.
3. The rate applicable to equity-oriented funds is 10%, which goes up to 11.648% when cess and surcharge is included.

Other important factors about Dividend Distribution Tax

The other important factors which are to be noted in relation to Dividend Distribution Tax or DDT can be summed up as follows:

1. DDT is paid in addition to the usual income tax liability of a company. Deductions or credits are not allowed for the DDT paid by the company.
2. Under Section 115BBD, the Indian companies which receive dividend from its foreign subsidiaries are eligible for a concessional tax rate of 15% on the dividend.
3. DDT is not payable in the case of dividends paid to a person or dividends paid on behalf of the New Pension System Trust.
4. Under the provisions of the Act, deductions in regard to expenses, allowances, or set off of loss are not allowed to the taxpayers while computing the income from dividends.