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Jan 12, 2018 12:32 PM IST | Source: Moneycontrol.com

Budget 2018: Government may abolish dividend distribution tax

Experts believe that the proposal would encourage companies to announce higher dividends and improve yields for retail investors.

Moneycontrol News @moneycontrolcom

The government is thinking of abolishing dividend distribution tax (DDT) in the forthcoming Budget after holding discussions and getting feedback from the stakeholders, according to a report by Business Standard.

Currently, only domestic companies are liable to pay DDT at the effective rate of 20.36 percent (15 percent DDT plus surcharge and cess) when they decide to pay dividend to its shareholders. The provisions for DDT were first introduced by the Finance Act, 1997.

Sources were quoted telling the paper that during pre-Budget consultations, stakeholders raised the issue of DDT with Finance Minister Arun Jaitley and Finance Secretary Hasmukh Adhia, in separate meetings.

Experts believe that the proposal would encourage companies to announce higher dividends and improve yields for retail investors.

In the 2016 Budget, Finance Minister Arun Jaitley introduced a 10 percent tax on investors receiving a dividend of more than Rs 10 lakh per annum – including individuals, Hindu undivided families (HUFs) and partnership firms.

"It is expected that Budget 2018 may propose a withdrawal of DDT and return to the classic system of dividend taxation, that is, dividend income to be taxed at the hands of the recipient shareholders," Sonu Iyer, Partner at EY, told BS.

According to Iyer, removing DDT would be a major step toward making India's effective corporate tax rate competitive with other countries'. Doing so would also let foreign investors get credit of tax in their home countries, thereby improving the return on their investment.

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for top and latest Budget 2018 news, views and analyses.
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