Meaning of Dividend Distribution Tax

Posted on 22 April 2023 Category : Indian Tax Terms

Term Dividend Distribution Tax under Indian Tax

Dividend Distribution Tax (DDT):

In this article, the information about Dividend Distribution Tax is explained. A brief description about the subject is explained here. You may contact concerned government agency for latest update.

Dividend Distribution Tax (DDT)

Under section 115-O of the Act, Dividend Distribution Tax (‘DDT’) is an additional tax payable at 20.36% (including applicable cess and surcharge) by a Domestic Company on its distributed profits
If DDT is not paid within 14 days of declaration/ distribution/ payment of dividend (whichever is the earliest),
- Company would be deemed to be an ‘assessee in default’ as per Section 201 of the Act
- Levy of interest at 1% for every month or part of a month, for delay
- Possible imprisonment under section 276B of the Act
DDT is payable separately, over and above the income tax liability of a Company
No deduction or credit allowed to the company for the DDT paid
No DDT is payable, if dividend is paid to any person for or on behalf of the New Pension System Trust
Finance Act 2012 has removed cascading effect of DDT in multi tier corporate structure (previously relief was available only on a single tier corporate structure)
Finance Act 2013 removes cascading effect of DDT on dividend received from foreign subsidiary company on fulfillment of specified conditions
Section 115BBD provides for concessional rate of tax of 15% on dividend received by an Indian Company from its foreign subsidiary

"Dividend" includes—

i. any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ;

ii. any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not ;

iii. any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not ;

iv. any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the

v. company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;

vi. any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

But "dividend" does not include—

i. a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;

a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965;

ii. any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ;

iii. any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;

iv. any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);

v. any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).

The information provided here is about Dividend Distribution Tax. If you would you like to add more information about Dividend Distribution Tax, share below your thoughts.

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