Finance Minister Nirmala Sitharaman on Saturday announced the abolition of dividend distribution tax (DDT), a move that will result in revenue foregone to the tune of Rs 25,000 crore.
"The dividend will be taxed only in the hands of the recipients at their applicable rates," she said while presenting the Union Budget for 2020-21. Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 per cent plus applicable surcharge and cess in addition to the tax payable by the company on its profits.
Sitharaman said the system of levying DDT results in an increase in tax burden for investors, and especially for those who are liable to pay tax less than the rate of DDT if the dividend income is included in their income.
Further, non-availability of credit of DDT to most of the foreign investors in their home country results in a reduction of the rate of return on equity capital for them.