Budget 2020: Dividend Distribution Tax abolished, announces FM Nirmala Sitharaman

Budget 2020: Addressing the demand from experts and industry, finance minister Nirmala Sitharaman on Saturday abolished the Dividend Distribution Tax or DDT. "Dividend Distribution Tax to be removed. Dividend shall be taxed at the hands of the recipients," said the finance minister. A dividend is a return given by a company to its shareholders out of the profits earned by the company in a particular year.

Any domestic company which is declaring dividend was required to pay DDT at the rate of 15% on the gross amount of dividend as mandated under Section 115O. The move has been welcomed by experts. Companies are required to deposit DDT within 14 days of declaration, distribution or payment of dividend whichever is the earlier. In case of non-payment within 14 days, the company shall have to pay interest at the rate of 1% of the DDT. 

"The FM has accepted the demand of the industry to reverse the taxability of dividends back to the recipients. Now dividends will be taxed in the hands of recipients. She also referred to deductibility of dividends received by a holding company," SR Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas said.

Other major announcements made on the taxation part included concessional withholding rate of 5 per cent on interest payment to non-residents extended up to June 30, 2022 and a new simplified tax regime.

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Alok Agrawal, Partner, Deloitte India called some of these announcements important. He said that abolishing DDT will help attract investors and provides relief. "Dividend taxable only in hands of recipient at applicable rates," he said.

"Additional Interest deduction of 1.5 lacs for housing loans for affordable housing extended upto 31st March 2021," Agrawal added.

Revenue forgone on dividend distribution tax is at Rs 25,000 cr, the Finance Minister said during her budget speech today. The demand for abolishing the DDT was also recommended by the Direct Tax Code (DTC) task force The DDT will not be applicable from the next financial year starting April 1, 2020.  

The move has been hailed by the industry that has been demanding for the scrappage of the DDT. 

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