We Design Your Financial Destiny


(Serious) Words of Wisdom : "The stock market is a giant distraction from the business of investing." ~ John Bogle

Now pay more tax on your dividend

As you know, dividend distributed by the company or the income distributed by mutual funds is subject to tax [See 'Dividends are NOT tax-free']. This, in common parlance, is the Dividend Distribution Tax (DDT).

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'.]

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

You Learn A Lot By READING... And Even More By SHARING.

Share Button

Ignorance is like a SIGNED BLANK CHEQUE... anyone can MISUSE it.

Subscribe via Email
Powered by Blogger.

... THREE VALUABLE TIPS ...

1. 'Stock Markets At An All-time High' Is Absolute Nonsense
All-time high at the Stock Markets
Do you believe, at current market levels, you are standing at the edge of a cliff?

 


2. Family Floater Health Policy: Insure Your Parents Separately
Family Floater Health Insurance
Wider and cheaper health cover is possible if parents are insured separately.

 


3. Herd Mentality: Why Do We Follow The Crowd? And Is It OK?
Herd Mentality: Is it good?
(Blindly) follow the crowd and your investments could suffer deep losses.