Dividend Distribution Tax: Meaning, Tax Rate and When DDT Had To Be Paid?

Gaurav Seth
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Gaurav Seth

What was Dividend Distribution Tax?

The Dividend Distribution Tax was a tax imposed on dividends that a business paid to its shareholders out of profits. The tax on the payment of dividends, or DDT, was taxed at the source and was deducted at the point of the distribution of dividends by the business. The dividend is the percentage of the company's earnings passed on to the shareholders by its owners. The legislation allowed for the tax on the payment of the dividend to be collected by the corporation, and it was not required to be paid by the receiving shareholder.

Abolishment of DDT

However, as stated out in the Union Budget 2020-21, submitted by the Minister of Finance, the Dividend Payment Tax and the use of DDT have been eliminated with effect from 31st March 2020. Investors should be expected to follow a classical scheme in which dividends are added to the total income of the investor and tax is levied at their respective slab rates in the hands of recipients. Businesses are no longer required to pay DDT. In all measures, it has been revoked. However, tax deducted at source (TDS) on such dividend income is deducted in excess of Rs 5 000 per annum at a rate of 10 percent per annum.

Dividend Distribution Tax Rate

As specified in Section 115O, any domestic corporation that declared/distributed dividends prior to April 2020, was required to pay DDT at the rate of 15 percent on the gross dividend sum. The effective DDT rate was therefore 17.65 percent on the total dividend. The dividend distribution tax (Sec 115 O) was 15 percent, although it had been raised from 15 percent to 30 percent in the case of the dividend referred to in Section 2 (22) (e) of the Income Tax Act.

DDT for Mutual Fund

DDT was also applicable to mutual funds; the applicable prices for stock and debt funds are shown below. Equity funds have been exempted from DDT. The 2018 budget levied a 10 percent levy on stock mutual funds (11,648 percent net of surcharge and cessation). DDT is available at a rate of 25 percent for Debt Funds (29.12 percent including surcharge and cessation). In the possession of the holder of the fund, the dividend earned from holders is excluded.

When DDT had to be paid?

  • DDT was to be paid to the government within 14 days of the issuance, distribution, or payment of the dividend, whichever is the earliest.
  • If DDT was not charged during the specified time span, before the balance is cleared, an interest rate of 1 percent per month was to be charged.
  • The tax was, however, paid individually, over and above the income tax obligation of the corporation. It did not allow for any allowance or credit to the company for paying the DDT Tax, as per the income tax rule.

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