CA M. Lakshmanan

Though the proposed amendment to Section 115-O of the Act  providing that in case any company receives, during the year, any dividend from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act, will remove the cascading effect of ‘Dividend Distribution Tax’ (DDT), the one of the basic ‘canons of taxation’ viz. ‘one who earns more has to pay more tax’ has not been taken into account in the sense that because the entire Dividend is exempt at the hands of the recipient without any limit and the Limited company pays DDT (Dividend Distribution Tax) @ DDT and common man 10% at the time of distribution of dividend. The assessee who earns Rs. 100 as well as an assessee who earns Rs. 1,00,000 are taxed at the same rate i.e. @ 10%, which is paid by the company. One who earns more has to pay more tax and who earns less has to be either exempted from payment of tax or has to pay less tax. In order to overcome this type of disparity ‘Dividend’ is to be taxed under the head ‘Income from Other Sources’ and a deduction may be allowed under section 80L upto Rs. 10,000/- and if the Dividend is more than this exemption limit of Rs. 10,000/-, the excess may be added with Total Income and the DDT may be allowed as rebate or deduction as TDS  form the tax payable so that the income will be taxed at appropriate tax slabs.

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0 responses to “Dividend Distribution Tax and common man”

  1. Pradyumn says:

    I want to know, with the change in the Finance Bill, Sub section (3A) of section 115R of income tax has been omitted with effect from 1st day of April 2015. So accordingly do Mutual fund need to file the Dividend Distribution Tax return (DDT return) to Income Tax department for the FY 2014-15.

    Kindly clarify.

  2. Pradyumn says:

    Hi

    I want to know, with the change in the Finance Bill, Sub section (3A) of section 115R of income tax has been omitted with effect from 1st day of April 2015. So accordingly do Mutual fund need to file the Dividend Distribution Tax return (DDT return) to Income Tax department for the FY 2014-15.

    Kindly clarify.

  3. maha says:

    My company pay it the excess dividend distribution tax. How can company claim amount. Dividend declared on march 2011, DDT pay on may 2011 and AY 2011-2012 return filed on sep 2011 that time also pay it DDT on sep 2011

  4. paramesh says:

    My company pay it the excess dividend distribution tax. How can company claim amount. Dividend declared on march 2011, DDT pay on may 2011 and AY 2012-2013 return filed on sep 2011 that time also pay it DDT on sep 2011

  5. rugram says:

    Like Mr. S.Chandrashekhar, I too am a common man and the following is based on my limited knowledge.
    .
    In the case of an ordinary partnership firm, its liabilitites can be set off against the assets of the partners while in the case of a limited liability company, shareholders dont have to sacrifice their personal assets to meet the company’s liabilities. A company and its shareholders are two distinct tax entities. The profit of a company after tax payment, belongs to the company as a tax entity. Thus the shareholders cannot be entitled to claim tax-free dividend the same way a partner of a partnership company can. DDT is payable at 15% on the dividend, and thereafter the dividend becomes tax-free in the hands of shareholders, since the Govt. also gets its tax in the form of DDT. In the absence of DDT, the tax on dividend in the shareholders’ hands is payable by the shareholders according to their tax brackets. The article by the learned CA Mr. Lakshmanan here discusses if it is fair to tax all shareholders, irrespective of their taxable income, at the same rate of DDT.
    I hope my understanding of the matter is correct.

  6. S.CHANDRASEKAR says:

    Dividend Distribution Tax and common man

    I am a common man.  I want to clarify about DDT.  Dividend is distributed from the Net Profit earned by a Company after paying Income Tax 30%(+SC3%) to CBDT (Government).  Hence Dividend should not be taxed again when it will be distributed.  It is like appropriation of net profit in the Partnership Firm.  Appropriated Profit received by the partner is fully exempted from Income Tax since Income Tax on Net Profit is paid by the Partnership Firm. Like this dividend should be distributed with out DDT application.  It is common man opinion.  Let me know the clarification about my argument.

  7. Arun Draviam says:

    Self: DDT violates the principle of separation of ownership of company vis-à-vis shareholders.  DDT amounts to double taxation, as company has already paid corporate tax on its income.  DDT gives more revenue to the Government as the flat rate of 10% is levied on the retail shareholders who would not have paid tax on the dividend income received by them, given the deduction allowed under Chapter 6.  
    If companies in India start behaving like Hathaway Berkshire Inc. in the USA and do not distribute dividend, shareholders will make home-made dividends through capital appreciation and CGT is exempt in India, all the more merrier. 

  8. rugram says:

    The sentence ‘….
    the entire Dividend is exempt at the hands of the recipient without any limit and the Limited company pays DDT (Dividend Distribution Tax) @ DDT and common man 10% at the time of distribution of dividend’ is not clear.

    This subject has been discussed in different fora ever since dividends were made tax-free in the hands of shareholders (sometime in 1997), once the company has paid DDT. There is no consensus on this. What also has to be considered is that DDT helps the Govt. to earn tax-revenue directly from the companies instead of through hundreds of shareholders. The method suggested by the learned CA involves a fair amount of work for all parties concerned, with probably no commensurate benefit. Sometimes it becomes expedient to adopt measures like tax-free dividend (the present system) considering the cost of the paperwork. Further, with so many people going out of the tax net due to increase in exemption limit over the years, it is a moot point if the method suggested would lead to any positive results, except for social equity. A lot of small shareholders would then be compelled to file tax returns to claim exemption from amounts earned over Rs 10,000 as dividend. In a capital starved country like India, measures like tax-free dividends do help to raise resources and the Govt. also earns revenue with very little cost..

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