Dividend Distribution Tax in India
By Himanshu Joshi, Accounts Associate, Dezan Shira & Associates
Mar. 14 – The provisions of Dividend Distribution Tax (DDT) are contained in section 115-O of the Income Tax Act. A domestic company, in addition to the income tax payable on its total income, shall pay tax on income distributed, declared or paid to it by its subsidiaries as dividends.
DDT is levied at a rate of 15 percent plus applicable surcharge and cess. It is charged on the total amount of dividends, whether such dividends are paid out of current profit or accumulated profit.
Before charging DDT, the amount of dividends distributed, declared or paid by the company shall be reduced by:
- Dividends received from its domestic subsidiaries during the financial year, if such subsidiaries have paid DDT on dividends,
- Dividends received from foreign subsidiaries, where the company is liable to pay tax on such dividends as per the provision of section 115BBD (which has an effect from June 1, 2013), and
- The amount of dividends, if any, paid to any person for, or on behalf of, the New Pension System Trust.
A company is considered a subsidiary if another company holds more than half the nominal value of its equity share capital.
DDT is to be paid by domestic companies even if the company is not liable to pay any tax on its income.
A company shall be liable to pay the tax on distributed profits to the Central Government within fourteen days from the date of the declaration of any dividends, the distribution of any dividends or the payment of any dividends (whichever is earliest).
If DDT is not paid within due time interest will be accumulated at 1 percent per month or a part thereof shall be charged until the tax is paid.
Deduction of DDT is not allowed for any company or shareholder under any provision of income tax.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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