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Dividend Distribution Tax (DDT) is a tax levied on dividends distributed by companies out of their profits among their shareholders.
The Dividend Distribution Tax is taxable at source and is deducted at the time of the distribution. According to the law, DDT is levied at the hands of the firm, and the shareholder. An exception is that when a shareholder receives more than Rs 10 lakh in dividend, they have to pay an additional tax.
Under the Income Tax Act, any domestic firm which is distributing dividends has to pay DDT at the rate of 15 per cent of the gross amount. At different times, governments of the day have imposed and removed Dividend Distribution Tax according to market needs.
The Dividend Distribution Tax has to be paid to the government within 14 days of the dividend declaration. If not paid within the stipulated time, it has to be paid with an accumulated interest charged at the rate of 1 per cent per month. The tax is paid separately, over and above the company’s income tax liability.
Brokers, especially on Indian bourses, have been calling for Dividend Distribution Tax to be scrapped, since it leads to significant taxation of corporate earnings, making markets unattractive.
Other than DDT, the Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax are some major taxes levied on market instruments.