New Delhi: Now investors will pay dividend distribution tax (DDT), as the government on Saturday proposed to abolish dividend distribution tax (DDT) on companies. Henceforth, the tax will be shifted to recipients at the applicable rate.
"This is another bold move, which will further make India an attractive destination for investment," said Finance Minister Nirmala Sitharaman, while unveiling the Union Budget 2020 in the Parliament. She added that it would result in a revenue sacrifice of Rs 25,000 crore per annum.
A tax on dividends, DDT is shared by profit-making firms. Firms deduct the tax and pay it on behalf of their investors, as collecting it from individuals is a problem. Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 per cent, plus applicable surcharge and cess, in addition to the tax payable by the company on its profits.
"In order to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation, under which companies will not be required to pay it," said Sitharaman.
The system of levying DDT, Sitharaman said, results in an increased tax burden for investors. This burden is even more for those who have to pay tax less than the rate of DDT, if the dividend is included in their income, she said.
Even foreign investors were largely unhappy with DDT as it did not allow them to claim credit in their home jurisdiction and created increased compliance for companies.
"Thus, to remove the cascading effect, I also propose to allow deduction for the dividend received by the holding company from its subsidiary," Sitharaman said.
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