Dividend Distribution Tax (DDT) & Income Tax on Dividend Income
Dividend distributed by an Indian Company is exempt from income tax in the hand of shareholder subject to certain limits (*Read below). However Dividends paid by an Indian company are subject to Dividend Distribution Tax (DDT) to be paid by the company that distributes dividend.
DDT is charged at 15% of the aggregate dividend declared, distributed or paid. DDT payable is required to be grossed up. That means, the amount of divided is inclusive of DDT.
Also, there is a surcharge of 12% and 3% education cess on DDT. So, the effective rate is DDT comes to 20.3576%.
In case a company wants to distribute a Dividend of ₹100.00, the following are the calculations:
| Dividend to be Distributed | ₹100.00 |
| Grossed Up Value (100/85*100) | ₹117.65 |
| Tax On Dividend | ₹17.65 |
| Surcharge 12% | ₹2.12 |
| Total Dividend +Surcharge | ₹19.76 |
| Cess 3% | ₹0.59 |
| Dividend Tax +Surcharge + Cess | ₹20.36 |
| Total Fund Required for Declaration of Dividend of Rs.100.00 | ₹120.36 |
| DDT as % on Dividend and Tax | 16.91% |
That means, if the company has ₹100.00, that can be distributed to shareholders, the effective tax will be ₹16.91 and amount that can be distributed as dividend will be ₹83.09 only.
Comparison of Taxation on Profit Distribution – Company & LLP
The following table will demonstrate the difference in Taxation on Profit Distribution by Company & LLP
Category of Business | Company @15% | Company @22% | LLP @30% |
| Income | ₹100.00 | ₹100.00 | ₹100.00 |
| Basic Income Tax Rate | 15.00% | 22.00% | 30.00% |
| Effective IT Rate (IT+Surcharge+Cess) | 17.40% | 25.52% | 34.80% |
| Net Income Available for Distribution | ₹82.60 | ₹74.48 | ₹65.20 |
| Effective DDT (DDT+Surcharge and Cess) | 20.3576% | 20.3576% | 0.00% |
| Net Receipt by Shareholder / Partner | ₹65.78 | ₹59.32 | ₹65.20 |
| Effective Tax Rate | 34.22% | 40.68% | 34.8% |
Taxability of Dividend in the hands of Shareholder / Partner
Dividend received from a domestic company during the year up to ₹10 Lakhs is exempted in the hands of a Shareholder. Dividend received ed in excess of ₹10 Lakhs shall be chargeable to tax at the rate of 10% in the case of a resident individual/HUF/Firm. This tax shall be chargeable on dividend income in exceeds ₹10 Lakhs only. On the other hand, Profit distributed by an LLP is completely exempted in the hands of Partner.
The following table will demonstrate the difference in Taxation on Dividend in the hands of Shareholder / Partner
Category of Business | Company | LLP |
| Dividend / Profit Received by Shareholder / Partner | ₹1,500,000.00 | ₹1,500,000.00 |
| Exemption Limit | ₹1,000,000.00 | Totally Exempted |
| Taxable Dividend Income | ₹500,000.00 | NIL |
| Tax on Dividend Income | ₹50,000.00 | NO TAX |
Company Registration in Easy and Simple Steps
Register a new Company online and the Income Tax Exemptions at 15% (*T&C by Govt. of India Apply)