As we are aware that Hon’ble Finance Minister, Shri Arun Jaitley has presented Union Budget 2016-17 on February 29, 2016 wherein an additional 10% dividend tax has been announced to be imposed in the hands of the shareholders in case of dividend in excess of Rs. 10 Lacs in addition to the 15 % Dividend Distribution Tax. Corporates have to pay 15%DDT grossing up plus 12% surcharge and 3% Cess which amounts to total DDT of 20.3576% outflow.
It is hereby very humbly pointed out that this will hamper the Company’s dividend distribution policy and the ultimate shareholders’ will be affected due to less or no dividend. As in most of the corporate setup the major stake vests with the promoters only and even a lowest rate of dividend declaration amounts to a huge income in the hands of promoters which is tax free. However, on the other hand general shareholders are benefitted with the amount of dividend for which they have invested in the equity of the Companies.
To save this additional tax implications the Corporates will either declare lesser dividend or avoid declaring dividend as on declaration 20.3576% DDT is to be paid by the Corporate and 10% will be paid by their promoter. So why not let it taxed at the rate of 30 either in the hands of Company or Individual. What is the benefit of declaration of Dividend for the Company.
Furthermore, it will also hamper the basic criteria of taxation that no income should be taxed twice. First Companies need to pay tax on its profits @ 30.9%, then if it distributes this taxed amount of profit it has to pay DDT @ 20.3576% further on receiving the Dividend further 10.3% Tax is to be paid by the shareholder. Thus, a single income is to be routed through 61.5576% tax!!!!
Why we restrict the income from company while we are taking about Make in India, Startup and Ease of Doing Business.
I hereby propose very humbly that this cascading affect of DDT should be avoided and DDT should be reduced, so that total income should not be taxed more than 30.9% as it is applicable for Corporate Income.
This will not only protect the shareholders’ right but also encourage the promoters for better profits and better distribution. As legislation has already put a system in place to regulate the maximum shareholding of the Promoters Group so this will lead to better sharing of profits.
I hereby request all Chambers and Associations to incorporate this suggestion in the post Budged Memorandum so that the Govt. may look into and suitably amend the same, if consider it appropriate.
CAclubindia
