What is Dividend Distribution Tax?

Last Updated at: Oct 30, 2020
In October, 2020, the Delhi bench of Income Tax Appellate Tribunal (ITAT) held that Dividend Distribution Tax (DDT) levied by the assessee should not exceed the rate specified in the Double Taxation Avoidance Agreement (DTAA). This means, from now on, the DTAA rate will reign supreme over the DDT rate. 


Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to dividend tax. Only a domestic company (not a foreign company) is liable for the tax. Tax on distributed profit is in addition to income tax chargeable in respect of total income. It is applicable whether the dividend is interim or otherwise. Also, it is applicable whether such dividend is paid out of current profits or accumulated profits.

The tax shall be deposited within 14 days from the date of declaration, distribution or payment of dividend, whichever is earliest. Failing to this deposition will require payment of stipulated interest for every month of delay under Section 115-P of the Act.

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Dividend Distribution Tax of 16.22% is charged on domestic companies. Foreign dividends received by an Indian company currently are taxed at a rate of 30% (plus the surcharge and cess).

To encourage Indian companies to repatriate funds, it is proposed that where the total income of an Indian company includes any dividend declared, distributed or paid by a foreign subsidiary company, the dividends will be taxed at 15% on a gross basis. No deduction in respect of any expenditure or allowance will be allowed in computing the dividend income.