{"id":8779,"date":"2020-04-17T15:14:26","date_gmt":"2020-04-17T15:14:26","guid":{"rendered":"\/blog\/?p=8779"},"modified":"2020-04-17T15:15:34","modified_gmt":"2020-04-17T15:15:34","slug":"what-will-be-the-impact-of-removal-of-dividend-distribution-tax","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax\/","title":{"rendered":"What will be the Impact of Removal of Dividend Distribution Tax?"},"content":{"rendered":"\n<p>In February 2020, India\u2019s finance minister Nirmala\nSitharaman proposed to scrap the Dividend Distribution Tax (DDT), payable by\nboth Mutual Fund houses\nand companies. Instead, the tax will be levied at the end of individual\ntaxpayers. The government\nhas introduced TDS of 10% on dividend income, provided the amount is more than\nRs. 5,000 in a given Financial Year. The finance minister, in her\nbudget speech, made it clear that the dividend income would be taxable\naccording to the applicable tax slabs of individuals.<\/p>\n\n\n\n<p>The manifold changes, in the\noffing, after the proposed budget 2020 underlines the importance of wealth\nmanagement services for selecting the right investment plans, including tax saving mutual fund investments.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>DDT was introduced in 1997,\nand Section 115 O of the Income Tax Act provided for its regulation. According\nto the provisions, an Indian\ncompany had to pay 15%\nof the gross amount of dividend within 14 days of its declaration, payment or\ndistribution. After addition of surcharges and cess, the actual rate increased\nto 20.5%.<\/li><li>&nbsp;In the case of Mutual Funds, the DDT was applicable at the rate of\n25% on debt-linked Mutual\nFunds. The surcharge and cess further increased it to 29.12%. From 2018\nonwards, equity-linked Mutual\nFunds were taxable at the rate of 10% plus surcharge. <\/li><li>As per the earlier rules,\nindividual taxpayers had to pay tax at the rate of&nbsp; 10%, only if the dividend income was more\nthan Rs 10 lakh in a financial year.<\/li><\/ul>\n\n\n\n<p>The removal of DDT will have a widespread impact on\nvarious stakeholders, including domestic companies, MNCs, investors, promoters\nand foreign investors. Read on to know about the impact: <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"770\" height=\"400\" src=\"\/wp-content\/uploads\/2020\/04\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax.jpg\" alt=\"Divident Distribution Tax removal\" class=\"wp-image-8781\" srcset=\"https:\/\/tata-blog.osian.dev\/blog\/wp-content\/uploads\/2020\/04\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax.jpg 770w, https:\/\/tata-blog.osian.dev\/blog\/wp-content\/uploads\/2020\/04\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax-300x156.jpg 300w, https:\/\/tata-blog.osian.dev\/blog\/wp-content\/uploads\/2020\/04\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax-768x399.jpg 768w\" sizes=\"auto, (max-width: 770px) 100vw, 770px\" \/><\/figure>\n\n\n\n<ul class=\"wp-block-list\"><li>For both domestic companies\nand MNCs, this means reduced costs of business. This is because the dividend\npaying companies had to pay more taxes because of the cascading effect created\nby double taxation. In addition to the 30% taxation on Profit before Tax (PBT),\nthey had to pay DDT from profits. Further, even after having paid DDT by their\nIndian subsidiaries, MNCs could not claim foreign tax credit in their home\njurisdiction. This resulted in higher costs, often prompting the MNCs to seek\nvarious innovative measures for repatriating profits. With the removal of DDT,\nmarket experts predict a boost in foreign investments in India.<\/li><li>For retail investors in the\ntax slab bracket of less than 20%, removal of DDT will have a positive effect,\nas they would end up paying lower taxes. For investors in the 20% bracket, the\ntax structure will remain unchanged as companies had hitherto paid dividends\nafter deducting 20% as DDT. Instead, these investors have to now pay 20% taxes\non the dividend income. For retail investors above the 20% tax slab bracket,\nhowever, the impact will be negative, as they now have to pay higher taxes on\nthe dividends received. The impact will be highest for those in the 43% tax\nslab bracket.<\/li><li>Those Mutual Fund investors, who have opted for\ndividend plans, and in the higher tax bracket, would also have to pay higher\ntaxes. As per market experts, a way out could be opting for growth Mutual Fund investment plans\ninstead of dividend plans. For better cash flows, experts suggest opting for\nSystematic Withdrawal Plans (SWPs). For Mutual Fund houses, removal of DDT will\nhave a salutary effect, as they would see an increase in dividend yields. This,\nin turn, would result in Net Asset Value (NAV)-appreciation.<\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Foreign investors living in\ntax-haven countries would benefit from the removal of DDT, while the impact on\nforeign investors in countries having Double Tax Avoidance Agreement (DTAA)\nwith India, would be neutral. As for promoters in the high tax bracket, this\nwould again result in higher taxes. High dividend paying companies with a\nconcurrent high promoter stake are expected to set aside profits as retained\nearnings, instead of paying dividends. This could then be channelised into\nhigher capital expenditure and expansion of business, which would improve\nbusinesses and create new employment opportunities. In the long-run, this would\nhave a positive impact on India\u2019s Gross Domestic Product.<\/li><\/ul>\n\n\n\n<p><strong>Additional Read<\/strong>:-  <a title=\"How Can Wealth Management Help You Save on Tax?\" href=\"https:\/\/tata-blog.osian.dev\/blog\/wealth-management\/how-can-wealth-management-help-you-save-on-tax\/\">How Can Wealth Management Help You Save on Tax? <\/a><\/p>\n\n\n\n<p>Thus, removal of DDT will encourage foreign investments, while simultaneously transforming India into a favoured destination for doing businesses. Countries, including China, Japan and the USA already have a similar tax structure, sans DDT . Amidst the changes in the tax structure, as announced in the budget proposals, selecting the right investment plan now becomes an issue of paramount importance. You can zero in on Tata Capital\u2019s <a title=\"Wealth Management\" href=\"https:\/\/tata-blog.osian.dev\/wealth-management.html\">wealth management<\/a> services, which has a dedicated team of experienced professionals to guide you through the best investment plans.<\/p>\n\n\n\n<div class=\"wp-block-button aligncenter\"><a class=\"wp-block-button__link has-background has-vivid-cyan-blue-background-color\" href=\"https:\/\/tata-blog.osian.dev\/wealth-management.html\">Know More<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In February 2020, India\u2019s finance minister Nirmala Sitharaman proposed to scrap the Dividend Distribution Tax (DDT), payable by both Mutual Fund houses and companies. <\/p>\n<p><a href=\"https:\/\/tata-blog.osian.dev\/blog\/wealth-management\/what-will-be-the-impact-of-removal-of-dividend-distribution-tax\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":8782,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[37],"tags":[],"class_list":["post-8779","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-services"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.13 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Impact of Removal of Dividend Distribution Tax? - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"Check out how the removal of DDT will have an impact on various stakeholders, domestic companies, MNCs, investors, promoters &amp; foreign investors. 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