A day after Finance Minister Nirmala Sitharaman announced during her speech on Lok Sabha 2020 budget that the government had decided to abolish the dividend distribution tax (DDT), the center defended the move on Sunday (February 2), declaring that the Decision would benefit all taxpayers. The government released a statement that the tax payable by taxpayers on their dividend income is lower than the tax they previously paid indirectly through DDT.
"It would also encourage low earners to invest in the capital market, as the person with a total income of up to 5 billion rupees does not have to pay taxes on dividend income, while indirectly paying 20.56 percent. The same applies to the new tax regime: People with a total income of Rs 5 to 7.5 Lakh would pay a tax of 10 percent and people with a total income of Rs 7.5 to 10 Lakh would pay a tax of 15 percent, "the government said.
The center was confident that abolishing the DDT would also encourage the mutual fund market in India, "since most people would pay taxes at a lower rate on mutual fund income than under the old regime."
"The DDT-like rate for the distribution of income by debt funds was 25 percent for individuals and 30 percent for HUF and others. After gross surcharge and inclusion of surcharges / levies, this is 38.33 percent and 49.92 percent, respectively," added he added.
"The government said it was a reverse subsidy for the poor to the rich taxpayer. In addition, foreigners were taxed at a higher tax rate than the contract rate, with the possibility of not getting a tax credit in their home country." The proposal in the Finance Law 2020 not only addressed the issue of inequality in dividend taxation, but also made it easier for non-residents. India has always followed a classic tax system to simplify tax collection and reduce compliance. to follow the DDT tax system so that the tax is levied in one place when companies issue so many tax certificates. "
It should be noted that a corporation according to the corporation tax system is an independent legal person and is taxed on its income. The shareholders are also taxed on the dividend income they receive. This tax is known as the dividend distribution tax (DDT).
On Saturday (February 1) Finance Minister Sitharaman announced that the abolition of DDT would result in an income loss of around 25,000 rupees. "The dividend is only taxed in the hands of the recipients at the applicable rates," she said.