Budget 2020 | There will now be a tendency to lower dividend payout: Pawan Goenka
Several family-controlled businesses have heavy promoter holding.
February 03, 2020 / 17:14 IST
"The dividend distribution tax (DDT) will hurt anybody whose income is more than Rs 12.5 lakh. Because as of today you are paying 16-17 percent tax which is being paid by the company, now the tax is in the hands of the tax payer so it will be more than 20 percent going up to 42 percent," he told Moneycontrol.
Several family-controlled businesses have heavy promoter holding. For instance, companies like
Hero Motocorp and
Bajaj Auto have significant shareholdings held by the promoters or promoter family. Even multinational companies like
Maruti Suzuki and
Bosch have promoter holding in excess of 50 percent.
On February 1, Finance Minister Nirmala Sitharaman proposed in the Union Budget do away with the practice of getting dividend tax revenues from companies which is at around 16-17 percent. It is now proposed that the dividend income will now be taxed from the receiver which would be higher than the current rate even going up to 42 percent for the high net worth individuals.
Though there isn't any immediately available data but Goenka estimates that bulk of the share market investors have income above Rs 12.5 lakh per annum.
"Bulk of the dividend, the quantum, probably goes above Rs 12.5 lakh. It may help the foreign investors but domestic investors, especially promoters, who get large dividend would be hurt and therefore there may be a tendency of lowering dividend. I my view what they could have done like it is done in the US, it will be at a tax rate to a maximum of 20 percent, which means that there is a upper ceiling of 20 percent," added Goenka.
Several companies such as
Tata Motors have not rewarded its shareholders of any dividend in the past many years because of a down cycle in business or strategy to conserve cash.
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