Increase in Dividend Distribution Tax
The change in direct taxes levied by the government will leave the corporate with more amount of money to spend on investing and kick starting growth. The only bad news is the increment in the effective dividend tax distribution which is a tax that companies pay on dividends. However their outgoing tax may increase only if they pay out the similar amount as dividend.
If share holders establish lower dividends only then can the company maintain their outgo in taxes. The new mechanism of DDT will be effective in reducing the return on the long-term investments of various shareholders. Kaushik Mukherjee, the executive director of PwC stated that the methodology of the DDT mechanism is complex and that a simpler way would help in the DDT rate.
Arun Jaitley, the finance minister has increased the DDT rate effective by transforming the way the dividend distribution tax is worked out. The tax is said to be applied on the amount of dividend inclusive tax.
This will work out in a way for example if a company has a surplus of Rs 100 and the company wants to pay the shareholders the complete surplus as dividend, it will have to pay a DDT of Rs.15 and the balance amount of Rs 85 will be distributed among the shareholders as dividend. Therefore contrary to the earlier rules the company now has to pay 3 percent more points as dividend distribution tax.
Source: The Economic Times
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