The finance ministry may consider taxing dividend in the hands of shareholders and do away with the dividend distribution tax (DDT) in the Budget to be unveiled on February 1, EY India said on Monday.
In its pre-Budget expectations, EY said DDT has become burdensome for corporates due to various factors such as high rate, litigation on disallowance and hence the return on capital employed has significantly diminished.
"There is a strong stock market momentum and the government may not risk to slow down the same by introducing long term capital gains tax on equities market," EY India Partner & National Leader, Business Tax Services, Garima Pande said.
In the Budget 2015-16, Finance Minister Arun Jaitley had said that the basic rate of corporate tax in India at 30 per cent is higher than the rates prevalent in other major Asian economies, making domestic industry uncompetitive, and it would be brought down to 25 per cent over four years.
"Corporate income tax rate reduction does not seem likely in light of the fiscal constraints and subdued GST collection. However, Government may rationalise the effective corporate tax rate by abolishing Dividend Distribution Tax and restoring the classical system of taxation of dividends in the hands of shareholders," Pande said.