Prior to the introduction of DDT, gross amount of dividend was taxable in the hands of the shareholders / unit-holders at the applicable rate which varied from 0 – 30%.
However, since DDT has been introduced, the tax is levied on the amount paid as dividend, after reduction of the distribution tax. Therefore, the effective tax which is computed with reference to the net amount, works out lower than the prescribed rate.
To ensure proper tax collection, this budget has amended the relevant clause such that the DDT is computed on the gross amount.
Impact on dividend distributed by companies
DDT on dividends works out to 16.995% (15% DDT + 10% surcharge + 3% cess) and is presently calculated as under:
Distributable surplus = Rs.100
Dividend paid = 100/1.16995 = Rs.85.47
DDT = 100 – 85.47 = Rs.14.53
Effective DDT received by Govt. = 14.53/100 = 14.53%
This is being revised to as under:
Distributable surplus = Rs.100
DDT = 100*16.995% = Rs.17
Dividend Paid = 83
Thus, henceforth the shareholders will receive around 3% lower payout.
Impact on income distributed by mutual funds
DDT is applicable only on the non-equity oriented mutual funds. DDT on income distributed works out to 28.325% (25% DDT + 10% surcharge + 3% cess) and is presently calculated as under:
Distributable surplus = Rs.100
Income paid out = 100/1.28325 = Rs.77.93
DDT = 100 – 77.93 = Rs.22.07
Effective DDT received by Govt. = 22.07/100 = 22.07%
This is being revised to as under:
Distributable surplus = Rs.100
DDT = 100*28.325% = Rs.28.325
Income paid out = 71.675
Thus, henceforth the unit-holders will receive around 8% lower payout.
While equity-oriented funds will not be directly impacted as there is on DDT on the income distributed by such funds, they would receive lesser dividend payout on their equity investments as explained earlier.
By the way, this affects the super-rich the most as a significant percentage of their annual income comes from dividends. The aam aadmi earns only a tiny amount as dividends compared to his salary. [See 'Mukesh Ambani forgoes Rs.24 crore in salary - How Promoters and Media mislead people'.]
