DIVIDEND DISTRIBUTION TAX (DDT)

Related Topics: Direct Tax Code (DTC), Foreign Direct Investment

News

The task force on direct tax code (DTC) has recommended abolishing dividend distribution tax (DDT) with a view to promote investment.

About DDT

• The dividend distribution tax is a surrogate tax and it hinders foreign direct investment inflows.
• Dividends paid by a domestic company are subject to dividend distribution tax at 15 per cent of the aggregate dividend declared, distributed or paid.
• The effective rate is 20.35 per cent, including a 12 per cent surcharge and a 3 per cent education cess.
• According to sources, there is hardly any revenue loss by removing dividend distribution tax, since it will be offset by the taxes paid by shareholders.

Recommendations of Taskforce

• The task force on the new Direct Tax Code, which seeks to replace the existing Income Tax Act, submitted its report last month.
• The task force has suggested providing relief to the middle class by slashing personal income tax rates.
• The panel suggested strengthening compliance to shore up revenue collections.
• The government last week taking a leaf out of the report slashed corporate tax.
• The government slashed corporate tax by almost 10 percentage points in the biggest reduction in 28 years.
• Base corporate tax for existing companies has been reduced to 22 per cent from the current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from the current 25 per cent.