Dividend Distribution Tax – Things to Know
Tax to be paid at the time on the distribution of dividends by a company to their investors as Dividend Distribution Tax (DDT). Also, the dividend is distributed by companies as return(s) on the investment through the profit made by the investors.
DDT is levied on income that is earned by shareholders but paid to the Government on behalf of the shareholders by companies.
Dividend Distribution Tax – When it is Paid?
Dividend Distribution Tax or DDT is paid within 14 days of payment, distribution, and declaration of dividends to the investor(s) whichever is earliest.
Applicability of Gross Dividend Distribution Tax (DDT)
DDT is applicable on Mutual Funds. Here:
- Debt Oriented Mutual Fund: At 25% (29.12% that includes surcharge & cess).
- Equity Oriented Mutual Fund: At 10% (11.648% that includes surcharge & cess).
Although, dividend received by investor(s) is exempt in case of mutual fund holder.
Tax-provisions Related to DDT – The Concept
- Dividend income earned in excess of INR 10 lakh by individuals, partnership firms, private trusts, or HUF would be taxed at 10% rate.
- When a domestic holding company receives dividend from their own domestic subsidiary company & the holding company then distributes the dividend – The amount of dividend for DDT will be equalize to:
“Dividend distributed/paid/declared during the year minus the dividend that is received by holding company during the year.” (subjected to certain conditions)
Few More Things to Know about Dividend Distribution Tax
- DDT is paid-off/over above the income-tax liability; no credit or deduction is allowed to the company paying Dividend Distribution Tax.
- Whilst computing income by way of dividends, no allowance, set-off of losses, or expense are allowed to the tax-payer.
- If the dividend is paid for/on behalf of ‘New Pension System Trust’, DDT won’t be applicable.
As per section 115O, Dividend payable must be grossed up for the purpose of payment of Dividend Distribution Tax. Let us understand this concept with the help of an example.
DDT is levied on dividend income which is payable by the company on behalf of the shareholder. Now say face value of the share is Rs 1000 and the company declares a dividend of 10% on face value amounting Rs.100.
The dividend of Rs 100 must be passed net of DDT to the shareholder.
Company needs to gross it up by using DDT 15% + surcharge of 12% (on amount of DDT) + 3% of cess =15(DDT) +1.8(15*12%-surcharge) + 0.504(16.8*3%) =17.304%
Dividend declared must be net of tax by deducting 17.304%
So above dividend should be (100%-17.304%) = 82.696%. Dividend of Rs 100 is grossed up i.e. 100% / 82.696%= 120.93 and divided % on gross amount is 20.93%.
Summing up the overall concept of Dividend Distribution Tax (DDT)
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