Currently, DDT (Dividend Distribution Tax) is paid by the companies before paying a dividend to their shareholders. Therefore, it made a dividend tax free in the hands of shareholders of the Company.
- As per Budget 2020 dividend income from shares and mutual funds will now be taxable in the hands of the shareholders at the applicable income tax slab rates to their income and abolish the Dividend Distribution Tax (DDT) earlier levied on dividend income before distribution by the company or mutual fund house.
- Further tax will be deducted at source i.e. TDS on such dividend incomes will be levied at the rate of 10 per cent if the amount distributed exceed Rs. 5000/- in a financial year.
- After this Abolishment, all kinds of dividend income will form part of the taxable income of an assessee.
- Income distributed by the Mutual fund after April 01st 2020 will be taxable in the hands of Assessee. Now, the dividend income which was earlier tax-exempt in the hands of taxpayers will now become fully taxable. This would mean that the taxable income of the individual will increase.
- Further, taxpayers earning dividend income of more than Rs 10 lakh are required to pay tax at the rate of 10 per cent.