Context: According to the Finance Minister’s Union Budget 2020-21 speech, the Dividend Distribution Tax has been shifted to individuals instead of companies.

Dividend Distribution Tax; INDIATHINKERS

What is DDT? : It is a tax which is levied on dividends that a company pays to its shareholders out of its profits. How is it applied? : The Dividend Distribution Tax (DDT) which is taxable at source, is deducted at the time when the company distributes the dividends. What is dividend? : The dividend is the share of profits that the company shares with its shareholders. According to the law, the Dividend Distribution Tax (DDT) is to be levied at the hands of the company, and not at the hands of the receiving shareholder. However, an additional tax is imposed on the shareholder, who receives over Rs. 10 lakh in dividend income in a single financial year. Is it applicable to Private Companies also? As per Section 115-O, the Income Tax Act, any domestic firm which declares or distributes dividend has to pay DDT at the rate of 15 % on the gross amount of dividend. What are the other taxes levied on the Market Instruments? Besides DDT, other major taxes on the Market instruments includes the following:

  • Long-term capital gains (LTCG) tax : It is a levy on the profits from the sale of assets held for more than a year. The rates are 0%, 15%, or 20%, depending on tax bracket. (Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. This gain or profit comes under the category of ‘income’.)
  • Securities Transaction Tax (STT) : Securities transaction tax (STT) is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India. (Securities are tradable investment instruments such as shares, bonds, debentures, equity-oriented mutual funds (MFs) and so on and are issued either by companies or by the Indian government. This tax was introduced in the 2004 Union Budget and came into effect from 1 October 2004.The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale.)

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