Dividend Distribution Tax

Provisions for taxing dividend income, receive yet another upgrade

The Finance Bill, 2020 (the “Bill”) was recently passed by the Lok Sabha (Lower house of the Parliament) on March 23, 2020, with more than 50 amendments to the Bill. The Bill has now received the presidential assent and has become an Act (“Finance Act”).  The new provisions proposed by the Bill, for taxing dividends have also been amended to expand the scope of certain benefits and to provide more clarity surrounding the applicability of these provisions. Through this blog, we would like to discuss changes pertaining to taxation of dividends.

Deduction for dividends received from foreign companies and business trust

As per the erstwhile section 115-O of the Income-tax Act,1961 (“IT Act”), distribution of dividends by a domestic company was subject to an additional income tax, called Dividend Distribution Tax (“DDT”), in the hands of the company at an effective rate of 20.56% (inclusive of the applicable surcharge and cess). Such tax was treated as the final tax on dividends and the dividends were generally exempt from any further incidence of tax in the hands of the investors. Further, in order to reduce the cascading effect of DDT, domestic companies while computing the amount of dividends on which DDT is paid were allowed a deduction for dividends received from its subsidiary (i.e. where the company holds more than 50% of the shareholding of the subsidiary), provided DDT was paid by the subsidiary during the same financial year. Similar deduction was also available on account of dividends received from a foreign company on which tax was payable by the domestic company under section 115BBD of the IT Act, provided the domestic company held at least 26% equity shareholding in the foreign company.
Continue Reading Provisions for taxing dividend income, receive yet another upgrade

Dividend Distribution Tax Abolishment - Here’s Something Lost in Translation

The government has said taxes on income received from dividends will now have to be paid by the shareholders instead of the dividend distributing company. The Finance Bill 2020 presented alongside the Union Budget on February 1, 2020 abolished the imposition of Dividend Distribution Tax (“DDT”) w.e.f. FY 2020-21. Over two decades ago, the Finance Act 1997 under Income Tax Act, 1961(“IT Act”), introduced DDT wherein the taxes on dividend were directed to a single point i.e. to be paid by the dividend distributing company and the incidence of tax shifted from the recipient to the payer. Doing away with this practice, the government has once again reverted to the pre DDT days. Present rate of DDT is @15% on gross basis plus surcharge and cess, resulting in net tax rate of 20.56%.
Continue Reading Dividend Distribution Tax Abolishment: Here’s Something Lost in Translation

Recently, the National Company Law Tribunal (NCLT) rejected Ajanta Pharma Limited’s (Ajanta Pharma) scheme of amalgamation and arrangement (Scheme) between the company and its shareholder Gabs Investments Private Limited (Gabs Investments) on the grounds of General Anti Avoidance Rules (GAAR).

Continue Reading NCLT Smell Tests GAAR! Rejects Ajanta Pharma’s Scheme of Merger on Grounds of Tax Avoidance

This is the first post in the our new blog series on the Budget 2018. This is a two-part piece on the amendments proposed under this Budget to the Income Tax Act; published here is Part I. We hope you enjoy reading this as much as we have enjoyed putting this together.


On 1st February, 2018, the Finance Minister Mr. Arun Jaitley presented the last full-year Union Budget before the 2019 Lok Sabha elections. It was delivered against a backdrop of economic slowdown caused by demonetisation in November, 2016 and the implementation of Goods and Services Tax (GST) legislations. The Budget focuses on strengthening agriculture and the rural economy, providing social security benefits and infrastructure creation.

The Finance Minister stated that the Indian economy is reviving and predicted that its Gross Domestic Product will rise to 7-7.5% in 2018-19, and that India is expected to become one of the world’s fastest and largest economies.

In the paragraphs below, we present a snapshot of some of the proposed amendments to the Income Tax Act, 1961 (IT Act) presented in this Budget:


Continue Reading First Impressions of the Budget 2018: Income Tax Act – Part I