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What is Dividend Distribution Tax (DDT)?
By Anupama Deshpande | October 28, 2017

People invest in a company with the objectives of earning profit and maximise the capital gains on their investments. Indian companies give returns to their shareholders in the form of Dividends out of the profit made by them during that financial year.



Here, I would explain in detail as to What is dividend? How is it taxed? What is Dividend Distribution Tax?

What is Dividend?

Dividend can be defined as sharing of company's distributable profits with its shareholders in the proportion of shares held by them. The rate of dividend & its distribution is decided by company's board of directors and it is necessary to take the approval of the shareholders of the company to declare the dividend. It's not mandatory to pay dividends by the companies.

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A company can declare a dividend only after paying the interest to its creditors. It depends upon company's discretion whether to use a portion or whole of its residual profit for dividend.

How is Dividend Taxed?

When an Indian company declares a dividend, it is mandatory for it to pay a tax on dividend which is known as Dividend Distribution Tax.

What is Dividend Distribution Tax?

Dividend Distribution Tax is a tax that is required to be paid by the Indian domestic companies on any amount declared, distributed or paid as dividend to its shareholders.

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Dividend Distribution Tax is a Direct Corporate Tax. As the dividend is taxed before its distribution, it is free in the hands of shareholders. Therefore, the shareholders don't have to pay tax on dividend received by them & the dividend income received by them is fully tax free. However, the government has made some amendments w.e.f. F.Y. 2016-17 and now if dividend income exceeds Rs. 10 lakhs in any financial year, it would be chargeable at the rate of 10% for individuals, Hindu Undivided Family, Partnership Firms.

Time Limit for Payment of Dividend Distribution Tax to the Government

Company is required to pay Dividend Distribution Tax to the government within 14 days of declaration, distribution or payment of any dividend, whichever is earliest. If company fails to do so, it needs to pay an interest at the rate of 1% per month till it is paid. This is the responsibility of the company and the principal officer for paying the tax to the government.

Points to note about Dividend Distribution Tax

  • Currently, the rate of dividend distribution tax is 15%.
  • Surcharge, Education Cess and Higher Education Cess will also levied on DDT.
  • Dividend Distribution Tax was introduced by the Finance Act 1997.
  • All the Indian domestic companies are required to pay Dividend Distribution Tax.
  • If the investor receives a dividend from a foreign company then it will be taxable in the hands of the investor and the tax will have to be paid by the investor.

  • In Finance Act 2014, Section 115-O was amended due to which now the dividend has to be grossed up. Earlier, it was calculated on net amount paid as dividend instead of the gross amount.
  • If dividend income exceeds Rs. 10 lakhs in any financial year, it would be chargeable at the rate of 10% for individuals, Hindu Undivided Family, Partnership Firms.
  • Mutual Funds in India are also required to pay Dividend Distribution Tax on the dividends they declare in their various schemes.
  • No DDT is to be paid on dividend declared by Mutual Fund on their Equity Oriented Schemes.
  • The rate of DDT for Debt Schemes of Mutual Funds in case of individuals (Indian Residents & NRIs) is 28.84% (inclusive of surcharge and cess)
  • The rate of DDT for Debt Schemes of Mutual Funds in case of foreign company's investment is 34.61% (inclusive of surcharge and cess)
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About Anupama Deshpande
Anupama is a Co-Founder of CodeForBanks.com. She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.
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