Definition
Dividend Distribution Tax (DDT) History
Dividend Distribution Tax was a tax companies once paid on dividends before distribution, since abolished in favour of taxing dividends in shareholders' hands.
For years, Indian companies paid DDT on dividends before paying them out, so shareholders received dividends largely tax-free at their end. This flat company-level tax was criticised for being regressive, since small investors and large ones bore the same effective rate.
DDT was abolished and the system reverted to classical taxation, where dividends are taxable in the shareholder's hands at their applicable slab, with TDS deducted by the company above a threshold. Understanding the DDT era helps explain why dividend taxation rules changed and why payouts are now reported in individual returns.
Related terms
- Buyback TaxBuyback tax is the levy historically imposed on companies when they repurchased their own shares, treated as an alternative to dividend distribution.
- TDS Section 194 VariantsThe Section 194 family of provisions requires tax to be deducted at source on various payments such as contractor fees, commission, rent, professional fees and dividends.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.