Dividend Distribution Tax

What is a Dividend Distribution Tax?

• The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits.

• The Dividend Distribution Tax, or DDT, is taxable at source and is deducted at the time of the company distributing dividends.

• The dividend is the part of the profits that the company shares with its shareholders. The law provides for the Dividend Distribution Tax to be levied at the hands of the company, and not at the hands of the receiving shareholder.

• However, an additional tax is imposed on the shareholder, who receives over Rs. 10 lakh in dividend income in a financial year.

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Is Dividend Distribution Tax applicable to private companies?

• Under Section 115-O, the Income Tax Act, any domestic firm which is declaring or distributing dividends has to pay DDT at the rate of 15 percent on the gross amount of dividends.

• The rates of tax and computation methodologies have also changed over the years. In Budget 2018, tax on equity-oriented mutual funds was introduced at the rate of 10 percent.

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When is the Dividend Distribution Tax paid?

The tax has to be paid to the government within 14 days of the dividend declaration, distribution, or payment whichever is earliest.

• If DDT is not paid within the given time period, interest at a rate of 1 percent per month or part thereof starts getting accumulated till the amount is paid. The tax is paid separately, over and above the company’s income tax liability.

• The income tax law doesn’t provide for any deduction or credit to the firm for paying the DDT.

• Similarly, a taxpayer gets no deduction with respect to any expenditure or allowance or set-off of loss under the Act in calculating the income through dividends.

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DISCLAIMER: The information contained herein is generic in nature and is meant for basic educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product/Examination purpose. Subject to Amendments. Yogesh Suthar is not liable for any decision arising out of the use of this information.

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