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Dividend distribution tax calculation

Sasikeshav (Industrial Trainee) (31 Points)

19 March 2015

Can any one please explain How to calculate DDT u/s 115-O? with an illustration?

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CA PAYAL GAJJAR (Personal Practice) (150 Points)
Replied 19 March 2015

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.

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Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 19 March 2015

Ya totally agreed with Payal..

1 Like

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 19 March 2015

Nicely explained by Payal.

Regards,

1 Like

Sasikeshav (Industrial Trainee) (31 Points)
Replied 19 March 2015

@ Payal Gajjar : Thanks a Lot for explaining it picture perfectly.

Akhilesh Shah (Lecturer) (22 Points)
Replied 10 October 2015

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?

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rakesh jain (ca final) (21 Points)
Replied 24 December 2015

New bank account opening is compulsory for dividend distribution ?? we want to transfer directly from our bank a/c to shareholder

manoj (student) (21 Points)
Replied 17 June 2016

Originally posted by : CA PAYAL GAJJAR
	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.

Anand Prakash (Service) (53 Points)
Replied 20 June 2016

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

3 Like

NISHANT ARORA (STUDENT) (92 Points)
Replied 03 September 2016

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

kartik singh (5) (23 Points)
Replied 06 February 2017

it is mandatory to transfer of profit to Reserve ?

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Ashish Kumar Verma (I will be CA may not immediately but definitely) (22 Points)
Replied 26 March 2017

CA Payal..surcharge is 12%

kaushik (Audit executive) (28 Points)
Replied 28 May 2018

It should be added after grossing up

Kartikey Jain (Intern) (2382 Points)
Replied 05 July 2018

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%