Govt moots 10% tax on dividend exceeding Rs 10 lakh

Eyeing additional resource mobilisation, the government today proposed to impose 10 per cent tax on dividend exceeding Rs 10 lakh on individuals and firms.
Under the existing provisions of Income-tax Act, dividend which suffer dividend distribution tax (DDT) under the section 115-O is exempt in the hands of the shareholder.
Presenting the Budget in Lok Sabha, Finance Minister Arun Jaitley said that DDT uniformly applies to all investors irrespective of their income slabs and this is perceived to distort the fairness and progressive nature of taxes.
"Persons with relatively higher income can bear a higher tax cost. I, therefore, propose that in addition to DDT paid by the companies, tax at the rate of 10 per cent of gross amount of dividend will be payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs 10 lakh per annum," he said.

Under section 115-O dividends are taxed only at the rate of 15 per cent at the time of distribution in the hands of company declaring dividends.
The memorandum to Finance Bill 2016 said this creates vertical inequity amongst taxpayers as those who have high dividend income are subjected to tax only at the rate of 15 per cent whereas such income in their hands would have been chargeable to tax at the rate of 30 per cent.

Elaborating, the bill said that with a view to rationalise the tax treatment provided to income by way of dividend, there would be amendment to the Income-tax Act so as to provide that any income by way of dividend in excess of Rs 10 lakh would be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10 per cent.

The taxation of dividend income in excess of Rs 10 lakh would be on gross basis.
The amendments are proposed to be made effective from the April 1, 2017, and accordingly apply in relation to assessment year 2017-18 and subsequent years.