Dividend Distribution Tax – Meaning, Purpose, Calculation, Amendments

Dividend Distribution Tax

Dividend Distribution Tax – Meaning, Purpose, Calculation. As per the provisions contained in section 115-O (1) of the Income tax Act, 1961 any amount declared, distributed or paid by domestic company by way of dividends shall be charged to additional income tax at the rate of 15 per cent. Dividend for this purpose includes interim dividend and it can be paid out of either current or accumulated profits. Now you can scroll down below and check complete details for “Dividend Distribution Tax – Meaning, Purpose, Calculation”

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Dividend Distribution Tax Amendments

  • The Cess for DDT/IDT/BBT shall also be 4% HEC instead on 3% EC.
  • W.e.f. A.Y. 19-20, DDT shall also be attracted on deemed dividend u/s 2(22) (e) @ 30%. However, there shall be no grossing up on such dividends. Surcharge at 12% and Cess at 4% shall be applicable. Further, as the rate of DDT on 2(22)(e) is 30% it shall be fully exempt for the shareholders u/s 10(34) and the provisions of Section 115BBDA shall not be attracted on the same.
  • W.e.f. A.Y. 19-20, Income Distribution tax shall also be payable by Equity Oriented Mutual Funds @ 10%, subject to grossing up. Surcharge @ 12% and HEC @ 4% shall be applicable.

Time limit for payment :

dividend distribution tax shall be paid to the credit of the central government within 14 days from the date of declaration, distribution or payment of any dividend whichever is earliest by the company.

Purpose for which DDT was introduced :

Dividend is an income received by the person holding shares in a company. Dividends are the portion of profits of a company distributed to its members. So this a chargeable income, but in order to avoid the complexity in collecting tax from every assessee receiving dividend, government has introduced DDT , where company deducts tax from dividend income while distributing to its members and pays remaining amount to shareholders.
That’s why dividend received by the shareholders is not taxable in their hands. Prior to the introduction of DDT dividend in the hands of share holders was taxable.

Calculation of dividend distribution tax :

(1) In case of domestic companies :

The Domestic Company is liable to pay DDT at 16.995 percent ( inclusive of surcharge and education cess) on such dividends.and tax at this effective rate of 16.995% is paid on the amount of dividend paid/income distributed. The Finance (No.2) Bill, 2014 proposes to gross up the dividend paid with the income distributed for computingthe tax liability on account of dividend distribution tax. With the grossing up, the effective tax rate will be 20.47%, with the result, there will be an additional tax liability of 3.475%.

(2) In case of mutual funds :

Mutual Fund other than an equity oriented Mutual Fund is liable to pay income distribution tax as follows:

(a)28.325 % on income distributed to any person being an individual ora HUF by a money market Mutual Fund or a liquid fund

(b)33.99 percent on income distributed to any other person by a money market Mutual Fund or a liquid fund

(C)28.325 % of income distributed to any person being an individual or a HUF by a debt fund other than a money market mutual fund or a liquid fund;

(D)33.99 % on income distributed to any other person by a debt fund other than a money market mutual fund or a liquid fund; and

(e)5.665 percent on income distributed to non-resident or foreign company by Mutual Fund under an Infrastructure Debt scheme.

***All the above rates are inclusive of applicable rate of surcharge and education cess.

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