CA. M. Lakshmanan
In the budget it is proposed to reduce the tax on companies from 30% to 25% and increase the Dividend Distribution Tax (DDT) from 15% to 17% with usual Education Cess @2% and Secondary and Higher Education Cess @1%. Hence the dividend at the hands of the shareholder while it is received would have suffered tax @ 38.8% (Company’s Tax @25% + EC @2% + SHEC @1% & DDT @17% + EC @2% + SHEC @1%). If a company earns an income of Rs. 1,000/- the income tax that the company had to pay is Rs. 258/- and the balance if distributed as dividend again it would suffer tax as DDT of Rs. 130/- [17.51% on Rs. 742 (1,000 – 258)]. Hence the total tax for an income of Rs 1,000/- would be Rs. 388/-. It is a clear case of double taxation.
The dividend of Rs. 612/- is exempted at the hands of the shareholder since the dividend has suffered tax already in the form of Company Tax and DDT (Dividend Distribution Tax). But a shareholder who gets Rs. 1 Crore and a shareholder who gets Rs. 10,000 are taxed at the same rate of 17.51%. Instead the DDT can be treated as TDS and it should be allowed as deduction from the tax payable and further instead of exempting the dividend income totally, exemption can be granted up to a limit of Rs.25,000/-.
Author Bio
Sir:
DIVIDEND is NOT DOUBLE TAXATION; but being taxed in three – ways. The third being through Sec. 14A! And AO are using it to the hilt to pass at – will order. Industry must prevail upon GoI to do away with DDT & start taxing reciepient of such Income as per the applicable Tax Bracket.
This shall result in multiple benefits to both companies & non – company assessees:
1. Obviously, TRIPLE Taxation is done away with. As suggested by you, there can be TDS so levied on such a distibution of accumulated profits.
2. Draconian Sec. 14A r. w. Rule 8D applicable for EXEMPT income will not be misused & abused by AO.
3. Reprieve from calculation difference under INCOME TAX & under MAT; whereby, assessees land up paying Tax under MAT only due to INCOME FROM CAPITAL GAINS & EXEMPT INCOME.
4. To bring such distribution of profits in harmony with Sec. 22(2) pertaining to Loans & Advances to Shareholders. In fact, today a company should distribute accumulated profit as Loans & Advances & apprise Shareholder to account the same as Income & pay Tax on the same.