Dividend Distribution Tax is the Tax which is required to be paid @ 15% by the Company who has declared, distributed or paid any amount as Dividend. The provisions of Dividend Distribution Tax are governed by Section 115-O under Chapter XII-D and were introduced by the Finance Act 1997.
Changes introduced by Finance Act 2014
Arun Jaitley while announcing Finance Act 2014 has introduced certain changes in the manner in which the Dividend Distribution Tax is to be levied. Although the rate of Tax i.e. 15% remains the same as earlier, the manner of application has changed.
Earlier Dividend Distribution Tax @ 15% was applied on the amount paid as Dividend after reduction of Dividend Distribution Tax by the Company/ Mutual Funds. Therefore, the tax was computed with respect to the Net Amount paid as Dividend to the Shareholders.
As the Dividend Distribution Tax was levied on the Net Amount instead of the Gross Amount, the effective rate of tax was lower than 15%.
And therefore the Finance Act 2014 has amended Section 115-O and with the introduction of this amendment – the dividends would be required to be grossed up for the purpose of payment of Dividend Distribution Tax. This amendment can be explained with the help of an example.
Example explaining the Amendment
Before the Introduction of this amendment, if the Dividend Paid was Rs. 100, the Dividend Distribution Tax to be paid was Rs. 15.
However, after the Introduction of this Amendment, if the amount paid or distributed by a company is Rs 100, then the DDT under the amended provision would be as follows:-
|Dividend (Net Amt of Dividend)||=||Rs. 100|
|Increase by||(100*0.15)||=||Rs. 17.65|
|Dividend (Gross Amt)||=||Rs. 100|
|DDT @ 15% of Rs. 100||=||Rs. 17.65|
Therefore, with the introduction of this amendment, the amount to be paid as Dividend Distribution Tax has increased.
Other Provisions of Section 115-O – Budget 2018 Amendment
Budget 2018 has introduced an amendment to Section 115-O and after this amendment Deemed Dividend under Section 2(22)(e) has also come under the scope of Dividend Distribution Tax. Moreover, such Dividend Distribution Tax on such Deemed Dividend would be taxed @ 30% (without grossing up) in order to prevent camouflaging dividend in various ways such as loans and advances.
There are several other provisions in Section 115-O as well but these have not been changed and remain the same as earlier. These are as follows:-
Deductions allowed from Dividend for the purpose of Computation of Tax
The amount of dividend paid shall be reduced by,—
(i) The amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and,—
- where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend; or
- where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend:
Provided that the same amount of dividend shall not be taken into account for reduction more than once
ii. the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10.
Due Date for Payment of Dividend Distribution Tax
The company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of—
- Declaration of any dividend; or
- Distribution of any dividend; or
- Payment of any dividend,
(whichever is earliest.)
- No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to dividend distribution tax.
- Surcharge @ 10% and Education Cess and SHEC @ 3% would also be levied on this 15% Dividend Distribution Tax.