Tax burden of dividend shifted from Company to the Receiver as per Budget 2020. Dividend Distribution Tax is abolished to help the Companies, but Dividend received by assessee from domestic company has become taxable and the recipient is liable to pay tax on dividend received. Due to removal of Dividend Distribution Tax Revenue will be reduced by Rs 25,000 crore. So dividends will now be taxed in the hands of recipients.
As per section 10(34) of Income Tax Act, any income received by an individual/HUF as dividend from an Indian company is exempt from tax as the company declaring such dividend has already deducted dividend distribution tax before paying the dividend.
Since the Dividend Distribution tax is abolished, now the recipient of dividend is liable to pay tax. However, under Section 115BBDA (as introduced in the Finance Act, 2016), if aggregate dividend received by an individual/HUF from companies exceeds Rs. 10,00,000, it is liable to pay tax at the rate of 10% on dividend income received in excess of Rs. 10 lakh. Section 115BBDA applies only on dividend income received from domestic companies under Section 10(34) and excludes dividend income received from mutual funds under Section 10(35).
As per Section 115BBD of Income Tax Act, dividend received by an individual/HUF from a foreign company is fully taxable under the head "Income from other sources". The dividend received is included in the total income of the recipient taxpayer and will be charged according to the income tax rate slabs applicable to the taxpayer.
As per section 10(35) of Income Tax Act, any income received by an individual/HUF as dividend from a debt mutual fund scheme or an equity mutual fund scheme is fully exempt from tax.
The provisions relating to the abolition of DDT will be effective from April 1.
As per the amendments to the Income Tax Act:
Dividends declared between April 1, 2003, and March 31, 2020, will be subject to DDT under the old regime, while those declared after April 1, 2020, will be excluded.
Prior to the abolition, dividends distributed by a domestic company weren't included in the total taxable income of an assessee.
Now, dividends will form part of the taxable income of an assessee under the head "income from other sources".
Income distributed by a mutual fund registered with Securities and Exchange Board of India or a specified company after April 1 will be taxable in the hands of of the assessee.
Dividend received by a business trust from a special purpose vehicle will not form part of trust's taxable income with effect from April 1, 2021.
Distribution of income by a business trust will become taxable in the hands of unit holder.
The abolition of the DDT, would benefit companies in the long run.