New amendment with Dividend Distribution Tax in Budget 2014
July 28, 2014
In the current Budget 2014, a significant modification regarding Dividend Distribution Tax (DDT) is included that is pertinent to the dividends (whether interim or otherwise) announced, allocated or disbursed by a domestic company, (public or private limited, listed or otherwise) to its shareholders or through a non-equity oriented mutual fund to its unit holders.
At present, in both cases, such dividend or income bears supplementary tax – @15% (16.995% including surcharge @10% and cess @3%) on dividends shared out to its shareholders by a company u/s 115(O) and @25% (28.325% involving surcharge and cess) on income allocated by MFs to unit holders (Individuals and HUF) u/s 115(R).
This modification will be introduced from 1.10.14 and as a result, its retrospective applicability, if any, is least possible.
|Suppose an assessee has received a dividend of||Rs. 71.6750|
|DDT applicable on this amount = 71.6750 x 28.325% This amount is deemed to be income of the assessee and charged to DDT||20.3019|
|DDT applicable on this amount = 20.3019 x 28.325% This amount is deemed to be income of the assessee and charged to DDT||5.7505|
|DDT applicable on this amount = 5.7505 x 28.325% This amount is deemed to be income of the assessee and charged to DDT||1.6288|
|Continuing this process ad Infinitum, the total of the income and deemed income is||100.00|
The Finance Bill has adopted this method of computing the Income on which DDT has to be applied.
|Let me make it simple for you. Suppose the dividend income is||Rs. 100.00|
|DDT applicable on this amount = 100.000 x 28.325% = The MF is required to pay Rs. 71.675 as dividend to the shareholder and Rs.28.325 as TDS to the exchequer.||28.325|
|Prior to this amendment, the DDT charged was Rs. 20.3019. Now he will be paying addi¬tional DDT amounting to Rs. 8.0231 (=28.3250 — 20.3019).|
|In effect, from point of view of the revenue, the DDT rate has remained put at 28.325% and from the point of view of the investor it has gone up to 39.51% ((28.325 / 71.675) * 100)!!|
|Incidentally, corresponding rise in the case of dividend paid by a company to its sharehold¬ers is from 16.995% to 20.47%.|
|Redemption amount = (1.0926)ˆ3*100 =||Rs.130.4458|
|Cost of acquisition =||Rs. 100|
|Cost Inflation index for FY 14-15 =||1,024|
|Cost Inflation index for FY 11-12 =||785|
|Indexed Cost = 100*(1024/785) =||130.4458|
|LTCG is nil and therefore, 9.26% is tax-free!|