Evolution of dividend distribution tax and the debate surrounding its withdrawal

Dividend Distribution Tax was levied for the first time in the year 1997 wherein the
companies were liable to pay the tax on distribution of dividend and such dividend income
was exempted in the hands of the shareholders for tax liability. Recently, the law was
amended wherein the dividend distribution tax was withdrawn by the Finance Act of 2020
and the incidence of tax was shifted to the shareholders receiving the dividend. Before the
amendment DDT was governed by section 115-O of the income tax act wherein in addition to
the income tax chargeable to a domestic company, the dividend declared by any company
will be chargeable to an additional tax of 15 percent.

The withdrawal of the Dividend Distribution Tax has had certain impacts on the taxability of
people and different entities. While the amendment is beneficial for some stakeholders, it also
causes problems for a lot of stakeholders. The aim of the research paper is to analyse the
impact the amendment has had on different stakeholders and whether the amended provision
is actually for the benefit of the society and industry at large. For instance, the individual
shareholders in some or the other way have benefited from the amendment. As, before the
provision was withdrawn, the dividend to be distributed was taxed at a fix rate, even though
the shareholder may be subjected to a lesser tax rate, dependent on his/her income.