Dividend Distribution Tax – Abolished from FY 2020-21 onwards

Replace: Dividend Distribution Tax has been abolished from FY 2020-21 onwards. With this modification, the dividend is taxable within the palms of the recipient and no Dividend Distribution Tax is to be paid.

Dividend Distribution Tax is the Tax which is required to be paid @ 15% by the Firm who has declared, distributed or paid any quantity as Dividend. The provisions of Dividend Distribution Tax are ruled by Part 115-O beneath Chapter XII-D and had been launched by the Finance Act 1997.

Adjustments launched by Finance Act 2014

Arun Jaitley whereas saying Finance Act 2014 has launched sure adjustments within the method wherein the Dividend Distribution Tax is to be levied. Though the speed of Tax i.e. 15% stays the identical as earlier, the style of software has modified.

Earlier Dividend Distribution Tax @ 15% was utilized on the quantity paid as Dividend after discount of Dividend Distribution Tax by the Firm/ Mutual Funds. Due to this fact, the tax was computed with respect to the Web Quantity paid as Dividend to the Shareholders.

Because the Dividend Distribution Tax was levied on the Web Quantity as an alternative of the Gross Quantity, the efficient price of tax was decrease than 15%.

And due to this fact the Finance Act 2014 has amended Part 115-O and with the introduction of this modification – the dividends could be required to be grossed up for the aim of cost of Dividend Distribution Tax. This modification might be defined with the assistance of an instance.

Instance explaining the Modification

Earlier than the Introduction of this modification, if the Dividend Paid was Rs. 100, the Dividend Distribution Tax to be paid was Rs. 15.

Nonetheless, after the Introduction of this Modification, if the quantity paid or distributed by an organization is Rs 100, then the DDT beneath the amended provision could be as follows:-

Dividend (Web Amt of Dividend) = Rs. 100
Enhance by (100*0.15) = Rs. 17.65
(1-0.15)
Dividend (Gross Amt) = Rs. 100
DDT @ 15% of Rs. 100 = Rs. 17.65

Due to this fact, with the introduction of this modification, the quantity to be paid as Dividend Distribution Tax has elevated.

Different Provisions of Part 115-O – Funds 2018 Modification

Funds 2018 has launched an modification to Part 115-O and after this modification Deemed Dividend beneath Part 2(22)(e) has additionally come beneath the scope of Dividend Distribution Tax. Furthermore, such Dividend Distribution Tax on such Deemed Dividend could be taxed @ 30% (with out grossing up) so as to forestall camouflaging dividend in varied methods equivalent to loans and advances.

There are a number of different provisions in Part 115-O as nicely however these haven’t been modified and stay the identical as earlier. These are as follows:-

Deductions allowed from Dividend for the aim of Computation of Tax

The quantity of dividend paid shall be decreased by,—

(i) The quantity of dividend, if any, acquired by the home firm throughout the monetary yr, if such dividend is acquired from its subsidiary and,—

  1. the place such subsidiary is a home firm, the subsidiary has paid the tax which is payable beneath this part on such dividend; or
  2. the place such subsidiary is a international firm, the tax is payable by the home firm beneath part 115BBD on such dividend:

Offered that the identical quantity of dividend shall not be taken under consideration for discount greater than as soon as

ii. the quantity of dividend, if any, paid to any particular person for, or on behalf of, the New Pension System Belief referred to in clause (44) of part 10.

Due Date for Cost of Dividend Distribution Tax

The corporate shall be liable to pay the tax on distributed earnings to the credit score of the Central Authorities inside fourteen days from the date of—

  1. Declaration of any dividend; or
  2. Distribution of any dividend; or
  3. Cost of any dividend,

(whichever is earliest.)

  • No deduction beneath another provision of this Act shall be allowed to the corporate or a shareholder in respect of the quantity which has been charged to dividend distribution tax.
  • Surcharge @ 10% and Well being Cess @ 4% would even be levied on this 15% Dividend Distribution Tax.

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