{"id":39464,"date":"2022-01-21T11:14:06","date_gmt":"2022-01-21T05:44:06","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=39464"},"modified":"2024-04-23T12:57:23","modified_gmt":"2024-04-23T07:27:23","slug":"dividend-distribution-tax","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/","title":{"rendered":"Dividend Distribution Tax: Explained"},"content":{"rendered":"\n<p class=\"has-drop-cap\">A dividend refers to a return provided to\nthe shareholders by the company against the profit generated in a particular\nyear. The dividend is an income that is taxable in nature as per the IT\ndepartment rules. But, the income tax rules of our country provide for an\nexemption of the dividend income received from companies by the investor by\nimposing a tax known as Dividend Distribution Tax on the dividend-paying\ncompany. The Section 115O regulates the provisions relating to DDT<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Whats_new_on_the_Dividend_Distribution_Tax\" >What&#8217;s\nnew on the Dividend Distribution Tax?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Who_is_liable_to_pay_Dividend_Distribution_Tax_DDT_and_what_is_the_existing_rate_slab\" >Who is liable to pay Dividend\nDistribution Tax (DDT), and what is the existing rate slab?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Illustration_for_Understanding_the_Concept_of_Dividend_Distribution_Tax\" >Illustration for Understanding\nthe Concept of Dividend Distribution Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Applicable_timeline_for_paying_DDT\" >Applicable timeline for paying\nDDT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Special_Provisions_Related_to_DDT\" >Special Provisions Related to\nDDT<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Dividend_Deposit_Tax_on_Mutual_Funds\" >Dividend Deposit Tax on Mutual\nFunds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Impact_on_the_Investor\" >Impact on the Investor<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Who_should_opt_for_Dividend_Scheme\" >Who should opt for Dividend\nScheme?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Noteworthy_Points_about_the_Dividend_Distribution_Tax\" >Noteworthy Points about the\nDividend Distribution Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/dividend-distribution-tax\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_new_on_the_Dividend_Distribution_Tax\"><\/span>What&#8217;s\nnew on the Dividend Distribution Tax?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>As per the <strong>Income Tax departmen<\/strong>, the local establishment is not required to pay DDT, i.e. dividend distribution tax on any amount declared, distributed, or paid by such establishment via a dividend, w.e.f, Assessment Year 2021-22<\/li>\n\n\n\n<li>A dividend coming from a domestic establishment is taxable in the hands of shareholders.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_is_liable_to_pay_Dividend_Distribution_Tax_DDT_and_what_is_the_existing_rate_slab\"><\/span>Who is liable to pay Dividend\nDistribution Tax (DDT), and what is the existing rate slab?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Any domestic entity which is paying a\ndividend is liable to pay dividend distribution tax @ 15 per cent against the\ngross amount of dividend as per Section 115O. Thus, the applicable rate of\ndividend distribution tax s approx 17.65 per cent on the dividend&#8217;s amount. <\/p>\n\n\n\n<p>As per Section 115O, Dividend\nDistribution Tax is 15 per cent in case of dividend as mentioned in Section 2\n(22)(e) of IT Act, it has been capped at 30 per cent. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Illustration_for_Understanding_the_Concept_of_Dividend_Distribution_Tax\"><\/span>Illustration for Understanding\nthe Concept of Dividend Distribution Tax <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Let understand the applicability of the\nDividend Distribution Tax via example. <\/em><\/strong><\/p>\n\n\n\n<p><strong>Estimate\nthe DDT on the dividend paid of Rs 3,00,000<\/strong><\/p>\n\n\n\n<p><strong><em>Step I:<\/em><\/strong> Calculate the grossed-up dividend. This\nis estimated @ 17.65 per cent on Rs 300,000, which would amount to Rs 52,500.<\/p>\n\n\n\n<p>Therefore, the grossed-up dividend shall\nbe equal to Rs 352500<\/p>\n\n\n\n<p><strong><em>Step 2:<\/em><\/strong> Estimate Dividend Distribution Tax on\nthe grossed-up dividend @ 15 per cent, which shall amount to Rs 450000. Thus,\nthe DDT on Rs 300,000 will be 345000. This rate does not take surcharge and\ncess into consideration; otherwise, the effective rate would increase to 20.56\nper cent.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicable_timeline_for_paying_DDT\"><\/span>Applicable timeline for paying\nDDT<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>DDT is required to be paid within 14 days\nof the declaration, disbursement of dividend amount whichever is the earliest.\nThe failure of payment in the said timeline would compel the company to pay the\ninterest @ 1 per cent of the DDT. The interest rate in the context would be\ncharged from the date following the date on which said DDT was payable till the\nperiod such DDT is paid.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Special_Provisions_Related_to_DDT\"><\/span>Special Provisions Related to\nDDT<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If the income generated via dividend\nexceeds Rs 10 lakh, the same shall be taxable @ 10 per cent for individuals,\nHindu Undivided Families, private trusts and partnership-based firms.<\/p>\n\n\n\n<p>In the case where the parent company received\ndividends from its subsidiary entity (both being domestic companies), then when\nthe former distributes dividends, the amount of dividend subjected to DDT shall\nbe equivalent to<\/p>\n\n\n\n<p><strong><em>Dividend declared\/paid\/distributed during\nthe financial year -Dividend received by parent company during the FY (exposed\nto certain conditions)<\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dividend_Deposit_Tax_on_Mutual_Funds\"><\/span>Dividend Deposit Tax on Mutual\nFunds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>DDT\napplicability is not only limited to the above scenario, but it also covers\nmutual funds under its ambit:<\/li>\n\n\n\n<li>The\nDDT on Debt oriented funds is taxed @ 25 per cent (29.12 per cent including\nsurcharge + Cess)<\/li>\n\n\n\n<li>But,\nequity-oriented funds are not exposed to DDT. Fund holders holding the\ninvestors&#8217; dividend need not pay any taxes in this regard.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Impact_on_the_Investor\"><\/span>Impact on the Investor<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Mutual funds that invest less than 65 per\ncent of the amount in equity are known as non-equity funds such as debt funds\nfor taxation purposes. Investors aiming to earn periodic income via dividends\nof equity-oriented funds should prefer this strategy. Doing so can help them\navoid severe tax cuts on their return. However, the dividend remains\nnon-taxable in the hands of the investors.<\/p>\n\n\n\n<p>The fund house shall make the DDT\ndeduction before any dividend payments. Dividend schemes are not beneficial for\nlong-term capital gains below Rs 100,000 as other schemes form tax.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_should_opt_for_Dividend_Scheme\"><\/span>Who should opt for Dividend\nScheme?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Investors aiming for stable income can\nopt to invest in a dividend scheme, despite the higher tax. <\/p>\n\n\n\n<p>If you intend to create wealth, a\ndividend scheme might not be your best bet for you as it could undermine your\naccumulated profits at regular intervals. Besides, the compounding benefit\nceases to exist on the payment of dividends. &nbsp;Despite the new tax landscape, equity-oriented\nfunds remain the preferred investment tool due to the high return.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Noteworthy_Points_about_the_Dividend_Distribution_Tax\"><\/span>Noteworthy Points about the\nDividend Distribution Tax<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>Direct distribution tax is payable separately, apart from the <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\"><strong>income tax<\/strong><\/a> liabilities of a company. No deduction or credit is permitted to the entity for the DDT paid.<\/li>\n\n\n\n<li>DDT would cease to exist in a case where the dividend is paid to any individual on behalf of the New Pension System Trust<\/li>\n\n\n\n<li>Section 115BBD facilitates a concessional tax rate of 15 per cent on dividends coming from foreign subsidiaries to the Indian company.<\/li>\n\n\n\n<li>Furthermore, no deduction w.r.t any allowance or expenditure or set-off of loss shall be permitted to the taxpayer in computing the income generated dividends. <\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A dividend distribution tax should be payable by the eligible shareholder against the slab rates mentioned above.&nbsp; Skipping such a requirement could be a bad idea for shareholders since dividend is a form of taxable income. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/dividend-declaration-sources-mandatory-conditions-and-procedure\/\">Dividend Declaration: Sources, Mandatory Conditions and Procedure\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A dividend refers to a return provided to the shareholders by the company against the profit generated in a particular year. The dividend is an income that is taxable in nature as per the IT department rules. But, the income tax rules of our country provide for an exemption of the dividend income received from [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":39477,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[160],"tags":[2084],"acf":{"service_id":"127"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4102,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39464"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=39464"}],"version-history":[{"count":15,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39464\/revisions"}],"predecessor-version":[{"id":63776,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/39464\/revisions\/63776"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/39477"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=39464"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=39464"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=39464"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}