Dividend Distribution Tax Rate & Calculations in India

A company gives a dividend to its shareholders as a return of the profits made in a particular year. The dividend is ideally money in the hands of the shareholders and going by the taxation laws those who receive income are subject to taxation.However, in this case, the Indian Income Tax Act does not levy taxes on shareholders receiving the dividend from Indian companies. But the company paying the dividend is obligated to pay tax which is known as Dividend Distribution Tax (DDT). The rules and regulations relating to Dividend Distribution Tax are mentioned in Section 1150 of Indian Income Tax laws.

Under section 1150 of the Indian Income Tax Act, the companies that are listed in the stock market are required to pay a DDT of 15%. Additionally, cesses and surcharges lead to approximate DDT rate of 20%.
The calculation method of DDT is known as Complex Gross Payment Method. This method states that if an organisation has declared a dividend of Rs 10 per share, then it is required to pay Dividend Distribution Tax of ((100*0.15/ (1-0.15)) = Rs 1.1765 per share).Moreover, shareholders are not entirely exempted from paying taxes on dividend received. For those who receive more than Rs 10 lakhs as share dividends in a year are subjected to pay 10% tax on the amount excess to the exemption limit.

As per the laws, DDT is to be paid within 14 days of the company declaring, paying or distributing the dividends, whichever is the earliest. Under Section 115P of the tax laws, there are rules set for the delay in payment of Dividend Distribution Tax.If the company fails to pay the tax within 14 days, as stated in the law, the company will be subjected to pay interest at the rate of 1 % of the DDT. This interest will be levied from the date DDT was applicable till the date the tax is actually paid. So, as to avoid paying interest, it is crucial to pay your DDT on time.

There are various special provisions concerning the DDT. Let us read a few of them:

• Dividend Distribution Tax is not included in the income tax liability of a company. It is paid separately irrespective of other tax liabilities.
• Dividends distributed by Equity Mutual funds are also subject to DDT at the rate of 10%. Fund houses deduct this amount before paying the net amount to the investors. Hence, dividends are considered as tax-free at the investor’s side.
• If the company is paying Dividend on behalf of the Link NPS
  trust, DDT is not applicable in such case.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.