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ARTICLE · 20 FEBRUARY 2020

India Withdraws Dividend Distribution Tax

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In a bold move aimed at increasing foreign investment, India has announced the withdrawal of its dividend distribution tax

IndiaTax
Pieter De Ridder
Pieter De Ridder
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In a bold move aimed at increasing foreign investment, India has announced the withdrawal of its dividend distribution tax (DDT). It unveiled the measure in its Union Budget for 2020–2021 on 1 February, proposing to replace the tax with a dividend withholding tax with effect from 1 April 2020, bringing it in line with similar taxes in most other countries, such as China, Japan, Korea, and the United States1. The proposed rate will be 10% for dividends paid to shareholders resident in India and 20%2 if paid to foreign shareholders. India's parliament is widely expected to pass the new tax into law.

Under the present income tax law, an Indian company which distributes a dividend has to pay DDT within 14 days of declaration, distribution or payment of the dividend, at a rate of 15% which is subject to a surcharge of 12% and a health and education cess of 4%, making the effective rate approximately 20.553%. 

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