Dividend distribution tax calculation

Upto 30.09.2014, the tax rate of 15% was applied on the actual dividend distributed. But w.e.f. 1.10.2014 the amt of divident distributed shall be presumed as 85% and shall be grossed up to 100% then 15% shall be applied on such gross amount. for example:

Dividend distribeted = 100

Grossing up of dididend [100/85*100]= 117.65

DDT @ 15% on 117.65=17.65

ADD:surcharge @ 10%=1.76

ADD:edu. cess @ 3%=0.58

So, in short u have to applied effective tax rate of 19.994% on Rs.100 but however subject to reduction as per sec 115-O(1A) on dividend received from subsidiary.

Ya totally agreed with Payal..

Nicely explained by Payal.

Regards,

What will be final amt. of dividend received by the share holder and the total amt paid by the company including DDT in the above example?

The above calculation does not include the surcharge & cess while grossing up.

The actual calculation would be

Dividend to be distributed = 100

Dividend distribution tax inclusive of surcharge & cess = 17.304% (DDT 15%, Surcharge 12% & cess 3%)

Grossing up of dividend [100/82.696*100]= 120.9248

Now apply DDT @ 17.304% on 120.9248 = 20.9248 (DDT to be paid)

So now the the net distribution would remain be Rs. 100 & effective DDT tax rate would be 20.9248

I hope this would clarify the query

CS Anand

I have to confirm that, is education cess and surchage should be included while grossing up or it would be added after grossing up.

it is mandatory to transfer of profit to Reserve ?

It should be added after grossing up

Rate of DDT is 15%. However the catch here is that it is to be computed on "grossing up" basis. So if a company has to declare dividend of Rs 100,000. Instead of Rs 15000 DDT, the tax would be calculated by [15% / (100%-15%)] X 10,000 ; which comes out to Rs 17,647. Plus a surcharge of 12% & cess of 3% will also be charged on it. So total tax outgo = Rs 20,357.58

That is why, often it is said that the effective rate of DDT is 20.358%

Dvidend Distribution Tax U/s 115O 15%+12%Surcharge+3% Education Cess = 17.304% Subject to Grossing Up 

Grossing Up of DDT 100/(100-17.304)*17.304 = 20.925% Effective Rate  

On 100 Rs Dividend DDT U/s 115O is 20.925 Rs.