The government may remove the Dividend Distribution Tax (DDT) to give a big relief to the companies. According to sources, the government may replace the DDT with Dividend Withholding Tax in this Budget 2020.
The companies cut 20% tax as TDS while giving dividends to the shareholders. The tax on the dividend distribution is currently at 20%. If the amount of dividend that a shareholder receives from a company, exceeds Rs 10 lakhs, then he is required to pay 10% as tax.
But, the proposal which is being brought for the Budget 2020, will mandate only the shareholder to pay tax and not the company. The tax required to be paid by the shareholder will be according to his income tax slab and if there is a refund as per the income of an individual, he is likely to get that too.
It has been a longstanding demand of the companies to remove the DDT as it has been subjecting to a double hit to the companies. The companies have been arguing that they have been paying taxes on the incomes that they were making and then on the dividends that they pay to the shareholders.
Moreover, if the dividend amount exceeds Rs 10 lakh limit, the shareholders are also required to give tax. The companies have made representation to the Finance Ministry several times in the past.
Even the top echelons in the finance ministry have agreed to do away with this tax as this is considered as a regressive tax. Countries like South Africa and Germany have Dividend Withholding Tax. In India, the DDT was brought in 1997.
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Removal of DDT will increase profits of the companies as the burden for the tax will go to the shareholders. The companies will just collect it as TDS and deposit it with the government which will not result in lower tax collections for the government.
Well-known tax expert, TP Ostwal says that removing the DDT will be a very positive step. It will also be good for small investors and good for the companies too, he said.