Relevance: Mains: G.S paper III: Economy
Context
- In order to increase the attractiveness of the Indian Equity Market, to provide relief to a large class of investors and to make India an attractive destination for investment, the Union Budget proposed to remove the Dividend Distribution Tax .
What is it?
It is a tax levied on dividends that a company pays to its shareholders out of its profits.
How is it applied?
The Dividend Distribution Tax, or DDT, is taxable at source, and is deducted at the time of the company distributing dividends.
- The dividend is the part of profits that the company shares with its shareholders.
- The law provides for the Dividend Distribution Tax 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 financial year.
About:
- Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits.
- It has been argued, she added, that the system of levying DDT results in increase in tax burden for investors and specially those who are liable to pay tax less than the rate of DDT, if the dividend income is included in their income.
- Further, non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them.
Concessional tax rate for Electricity generation companies
- In order to attract investment in power sector, the Union Budget proposes to extend the concessional corporate tax rate of 15% to new domestic companies engaged in the generation of electricity.
- To give boost to manufacturing sector, a concessional corporate tax rate of 15% was introduced in September 2019 to the newly incorporated domestic manufacturing sector which start manufacturing by 31st March, 2023.
Concessional tax rate for Cooperatives
- As a major concession and in order to bring parity between the cooperative societies and corporates, the Union Budget proposed to provide an option to cooperative societies to be taxed at 22% + 10% surcharge and 4% cess with no exemption/deductions. These cooperatives are currently taxed at a rate of 30% with surcharge and cess.
- The Finance Minister also proposed to exempt these cooperative societies from Alternate Minimum Tax (AMT) just like Companies which under the new tax regime are exempted from the Minimum Alternate Tax (MAT).
Affordable housing
- For realisation of the goal of ‘Housing for All’ and affordable housing, an additional deduction of up to one lakh fifty thousand rupees for interest paid on loans taken for purchase of an affordable house was announced in last year’s budget. The deduction was allowed on housing loans sanctioned on or before 31st March, 2020.
- In order to ensure that more persons avail this benefit and to further incentivise the affordable housing, the Finance Minister proposed to extend the date of loan sanction, for availing this additional deduction by one more year.
- Referring to the tax holiday provided on profits earned by developers of Affordable Housing projects approved by 31st March, 2020, Smt Sitharaman proposed to extend the date of approval of affordable housing projects for availing this tax holiday by one more year.