In a Union
Budget 2020 presented today, the Central Government has removed the Dividend
Distribution Tax. Currently, companies are required to pay Dividend
Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of
15% plus applicable surcharge and cess, in addition to the tax payable by the
company on its profits.
In order to increase the attractiveness of the Indian Equity
Market and to provide relief to a large class of investors, the Finance
Minister has proposed to remove DDT and adopt the classical system of dividend
taxation, under which the companies would not be required to pay DDT. The
dividend shall be taxed only in the hands of the recipients at their applicable
rate.
In order to remove the cascading effect,
the Finance Minister has proposed to allow a deduction for the dividend
received by holding company from its subsidiary.
The removal of DDT will lead to an estimated annual revenue
foregone of Rs. 25,000 crore. This will further make India an attractive
destination for investment.