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! |