DDT saves signatures, sprays investors

The movement to abolish distribution tax , which was payable for India Inc , and tax ing dividends in the hands of all shareholders, won’t hurt those who enjoy tax -free up to Rs 5 lakh. However, it will pinch the pocket of rich shareholders. Dividends paid on and after April 1, 2020, will be tax ed in the hands of at their applicable rate.

At present, shareholders earning dividend income of Rs 10 lakh or plus have to bear a tax of 10% on such income, plus the applicable surcharge and cess. The dividend, no matter the quantum, is tax -free in the hands of foreign shareholders (but they don’t get a tax credit in their home country on the underlying tax ).

Under the Budget proposals, a rich shareholder will find that against a tax rate of 10% on dividend income, the dividend gets added to his tax able income and is tax ed at the applicable slab rate.

A person with a tax able income of between Rs 50 lakh and Rs 1 crore is subject to a tax rate of 34.32%.

Live plus Let us assume that X earned a tax able income of Rs 75 lakh, of which Rs 15 lakh is dividend income. Under the current provisions, a dividend of only Rs 5 lakh is tax ed at a concessional rate of 10% plus applicable surcharge and cess.

Under the Budget proposals, they will end up paying a higher tax as the entire dividend income will be added to the total tax able income and be subject to the regular applicable tax rate. Thus, they will bear a higher tax burden of Rs 4.58 lakh on account of dividend income.

Currently, mutual funds are liable to pay DDT on equity and debt funds, but now investors have to pay tax on the dividend as per their income slabs. The same is true for those who choose the dividend reinvestment option.