X

Dividend Distribution Tax and common man

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.

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.

Read Other Articles of CA M. Lakshmanan

Categories: Income Tax

View Comments (8)

  • 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.

  • 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

  • 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

  • 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.

  • 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.

1 2
X

Headline

Privacy Settings