Dividend distribution tax

Tax queries 1067 views 5 replies

k.sampathkumar

CA Practise

69 Points Joined January 2008

Dear Frns,

Please clairfy me in the following Doubt..

Since the Company is paying tax(Corporate tax) on the Profits and again paying DDT(Dividend distribution tax ) on the profits (these profits are already subjected to tax) while distributing to shareholders....

It seems to be that company paying tax twice on the same profits ... 1) in the form of Corporate tax 2) in the form of DDTafter paying the corporate tax on the profits..

Eg:

PBT ---------------------------------------100

Less: Tax @ 30:----------------------- 30

PAT -------------------------------------- 70 (This 70 is already subjected to tax)

DDT @ 20 (say 20%)--------------- 14 (Is it not paying the tax twice?)

profits available for Dividend-- ---------- 56

Kindly Clarify me the above one....

Replies (5)

k.sampathkumar

CA Practise

69 Points Joined January 2008

Plz Clarify

CA Ganesh Agarwala

Audit Senior Manager

239 Points Joined November 2011

dear sampathkumar,

sorry to say ddt/cdt is not tax on profit rather its tax on dividend.... the above example u gave is a blunder as you have charged ddt/cdt on pat. ddt ic charged only when cmpany pays dividend. please go through the sec 115-0 of income tax act.

cheers

ganesh agarwala

CA H R SHENOY

PROPRIETOR

70 Points Joined May 2012

Dear Ganesh Agarwal,

You are right. Dividend Distribution Tax ( DDT) is payable only if and when dividend is declared/paid and it is not a tax on profits.

However, I guess what Mr.Sampath Kumar was trying to highlight was that same income is being taxed twice.Although in a way true, here, one may note that Supreme Court had long long ago upheld the taxing of Dividend. Here the contention was, Company pays taxes on its profits and Shareholders pays tax on dividend he earns on his investment in Shares and that Company is a separate legal person different from the Shareholder in in the eyes of law. This is the justification given by the Dept.,

ankita Goyal

Student CA Final

113 Points Joined September 2011

DDT is tax on dividends. The tax is actually the tax on income of the investors in the form of dividend. But it is very difficult to collect tax from every investor because their may be large no of small investors. So govt charges DDT from company on the amound of dividends distributed by them.