Dividend distribution tax is also applicable on mutual funds
Dividend distribution tax is also applicable on mutual funds

Dividend distribution tax explained in 5 points. This tax could be changed

  • Companies pay dividend distribution tax (DDT) on dividends distributed by them to their shareholders
  • The company declaring dividend deducts DDT before making the payment to shareholders

NEW DELHI : The dividend distribution tax or DDT is in the limelight after news reports say that the government is working towards a broad overhaul of tax on gains from equities, including the dividend distribution tax. Indian companies pay an effective dividend distribution tax (DDT) at 20.35% (including cess and surcharge) on dividends distributed by them to their shareholders. Press Trust of India had earlier reported that the task force on direct tax code (DTC) has recommended abolishing dividend distribution tax (DDT) with a view to promote investment.

Here are 5 things to know about dividend distribution tax:

1) Dividends subject to DDT are exempt from tax in the hands of the recipient or shareholder as the company declaring dividend deducts DDT before making the payment.

2) However, in 2017 an additional income tax of 10% became applicable if the aggregate dividend income exceeds 10 lakh per annum. It is applicable on the excess amount above 10 lakh.

3) Dividend distribution tax is also applicable on mutual funds. The fund house deducts DDT at source so dividends from mutual fund schemes are tax-free in the hands of the investors. Dividend paid by the scheme reduces the distributable surplus available for investors.

4) Budget 2018 introduced dividend distribution tax on equity oriented mutual funds. It is taxed at 10% and including 12% surcharge and 4% cess it adds up to 11.648%.

5) On debt oriented mutual funds, DDT is 25% and after including 12% surcharge and 4% cess it adds up to 29.12%.

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