All about Dividend Distribution Tax .
The provisions relating to Dividend Distribution Tax are governed by section 115O of Income Tax Act 1961.
Any domestic company which is declaring/distributing dividend is required to pay Dividend Distribution Tax at the rate of 15% on the grossed up amount of dividend as mandated under section 115O of Income Tax Act 1961. Therefore the effective rate of DDT is 17.65% on the amount of dividend.
This rate excludes surcharge and cess. If percentages of surcharge and cess are also included, the effective rate of DDT would be 20.56%.
DDT is payable separately, over and above the income tax liability of a Company. No deduction or credit is allowed to the company for the DDT paid.
Further, no deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the taxpayer under the Act in computing the income by way of dividends.
No DDT is payable, if dividend is paid to any person for or on behalf of the New Pension System Trust
As per the provision of section 115P of Income Tax Act 1961, DDT is to be paid within 14 days of declaration, distribution or payment of dividend whichever is earlier. In case of non-payment within 14 days, the company would be liable to pay by way of interest at the rate of 1% of the DDT for every month or part of month from the date following the date on which such DDT was payable till the time such DDT is actually paid to the government.
Dividend distribution tax on dividend or distributed by Mutual Funds
DDT is also applicable on mutual funds:
(a) On debt oriented funds DDT is at the rate of 25 percent (29.12 %including surcharge and cess).
b) However, equity-oriented funds were exempt from DDT. Budget 2018 introduced, tax on equity oriented mutual funds at the rate of 10 percent (11.648 %including surcharge and cess).
c)The dividend received by investors is exempt in hands of the fund holder
Dividend Highlights
a) As per section115BBDA of Income Tax Act 1961, income by way of dividend in excess of Rs 10 lakhswould be chargeable at the rate of 10% for individuals, Hindu Undivided Family or partnership firms and private trusts.
b) When a holding company receives dividend from its subsidiary company (both being domestic companies), then when the holding company distributes dividend, amount of dividend liable for DDT will be equal to:
Dividend declared/distributed/paid during the year
(Less): Dividend received by holding company during the year
c) Section 115BBD of Income Tax Act 1961 provides for concessional rate of tax of 15% on dividend received by an Indian Company from its foreign subsidiary.
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