Thursday, September 18, 2014

Dividend distribution tax rate for fy 2014-15 ay 2015-16

Dividend distribution tax rate for fy 2014-15 ay 2015-16

As per dividend distribution tax companies act 2013 and Union budget FY 2014-15 AY 2015. The Current dividend distribution tax (DDT) rates in India  has been increased and dividend distribution tax rate  has now been raised from 15% to 17.65% (plus surcharge and cess) and  the dividend distribution tax rate is also raised by about 3%. 

What Economists view about this?

As per economists , It implies a lower dividend for all shareholders, or companies may simply stop declaring dividends and may choose instead to keep the surplus as reserves within the company. Such a  way of increasing Dividend Distribution Tax under the pretext of "grossing up" may not be expected by many share holders. Investors will have a 3% deduction from their Long-Term Investment dividend income

How these income tax amendments impacts to corporate companies and Share Holders and what are the Mutual fund rates on liquid funds?

Those short-term investors, who invest just before dividend declaration and withdraw investment just after dividend declaration will be at a lower profit also, and may be discouraged from such acts. If this happens, total number of share-holders available to share the amount allotted for dividend will be less and real long term investors will benefit.3 % increase may increase the government bag by a thousand crores. This de facto raising of Dividend Distribution Tax is thought to not a good sign at all for the stock markets, and economist believe it may have a strong feeling it will impact market sentiment negatively.

Every single dividend declaring company will get affected - more accurately, the SHAREHOLDERS in every dividend declaring company will get affected through lower dividend payouts as a result of this "grossing up" calculation. RIL declared Rs 2793 crores as dividends to its shareholders for FY 2014-15.

Dividend Distribution Tax Rate is a damper . 3% rise on that through higher DDT implies around 84 crores in extra tax outgo, which is the extent to which post-tax dividends distributed to shareholders will reduce. 

Dividend distribution tax rate for ay 2015-16 for companies  , cascading effect of dividend distribution tax 

Similarly, HUL declares 60% of its Net Profits on average as dividend. HUL declared 4000 crores last FY14 as Equity Dividend. 3% of that is 120 crores. These are not small sums. They ultimately impact the end shareholder, funds, and investors, to say nothing of the Promoters. This must be rolled back, or DDT should be reduced to 12% to negate the impact of this "grossing up".  There is no non dividend distribution tax treatment journal entry and accounting entries 

Common Terms related Dividend distribution tax ( DDT)   

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