Budget 2020: Removal of DDT to help these investors to save money

Budget 2020: Finance Minister Nirmala Sitharaman in her second budget presentation on Saturday abolished the Dividend Distribution Tax (DDT), while making dividends taxable in the hands of the recipients alone.

At present, companies are paying dividend distribution tax at 20.5553 per cent while distributing dividends. Source - Reuters.

Budget 2020: Finance Minister Nirmala Sitharaman in her second budget presentation on Saturday abolished the Dividend Distribution Tax (DDT), while making dividends taxable in the hands of the recipients alone. This was a much-awaited moved but will benefit a section of investors. Dr. Suresh Surana, Founder - RSM India explained that the move would be a boon for the corporate shareholders and retail investors in lower income tax brackets.

"However, for high income resident taxpayers, there would be high tax incidence due to maximum marginal rate of 42.7%. Foreign shareholders may get credit in their home country for the taxes paid in India and benefit from these provisions. Mauritian and Singapore companies benefitting from DTAAs would once again be major beneficiaries," he said.

Surana explained the benefits and drawbacks of the removal in this table -

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At present, companies are paying dividend distribution tax at 20.5553 per cent while distributing dividends and it is proposed to be abolished from 1 April 2020 onwards. The same is replaced with tax on dividends to be paid by recipient of dividends as per applicable rates.

The move, however, was in line with the expectations, said Arun Kumar, Head of Research at FundsIndia.com.

"It was mostly in line with expectations - DDT being removed, higher insurance cover for bank deposits and a cut in personal income tax (but severely diluted if you consider the impact post deductions and exemptions). The infrastructure spends are only marginally higher and there is no major change in the rural expenditure," he said.

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