Dividend distribution tax

Hi Friends ,

I invite all of you for a discussion on whether dividend distribution tax constitutes double taxation or not ?

- Dividend is paid after P.A.T that means the company has already paid a tax on this income ,the company is also not allowed any deduction for paying dividend , so while paying dividend to shareholders again DDT has to be paid of aprox 16 % so on the same income tax has been paid twice once as income tax and second as DDT making effective tax rate of aprox 46 % which is way too harsh for investors.

I am puting forth this issue for discussion as i and my friends intend to open a Private Limited Company and the problem we are facing is how can we pay back money to our investors , if are supposed to pay DDT we end up paying 46 % to goverment. So if anyone has a solution to this problem please help.

Yes, I too agree with you. In case of partnership firm, profits are exempt in the hands of partners but this is not to so in case of Company. The reason may be as follows. As we know, Partnership firm is managed by partners itself but in case of company management is different from owners. So in case of firm, partners can easily track that firm is paying taxes twice if profits from firm are again subject to taxation in their hands but in case of company share holder may not concern about this unless such share holder think like you. If you are share holder you only think about how much dividend you are getting and further you feel happy that Dividends are exempt in your hands. You may not concern about all other things. So psychologically share holder satisfied himself even though he is paying extra taxes. so it is chance for Dept. to collect taxes that's why they followed this principle.