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.