In what is considered to be a bold move, Indian Finance Minister, Nirmala Sitharaman, has announced that the Government would abolish the controversial dividend distribution tax (DDT).
The announcement was made in the Budget Speech that Sitharaman delivered on February 1.
“In order to increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT,” the Minister said in her Budget Speech.
Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 percent, plus applicable surcharge and cess, in addition to the tax payable by the company on its profits.
Under the proposal, the dividend shall be taxed only in the hands of the recipients at their applicable rate. It is also proposed to allow deduction for the dividend received by holding company from its subsidiary to remove the cascading effect.
See Finance Bill, 2020