Five things you need to know about Dividend distribution tax (DDT)

Here are five things you need to know about Dividend distribution tax (DDT):

1) The Finance Bill 2014-15 has modified the manner in which the dividend distribution tax is computed with effect from 1 October 2014.

2) DDT is payable before the distribution of dividend by nonequity mutual funds that do not have at least 65% of the assets invested in equity shares.

3) If a mutual fund intends to pay Rs 100 as dividend, and if the DDT was 25 per cent, the fund would earlier pay Rs 20 (25 per cent of Rs 80) as DDT to the government and Rs 80 as dividend.

4) This method will now change to gross computation, wherein of the Rs 100, Rs 25 would be paid as DDT and the balance Rs 75 will be paid to the investor.

5) The DDT will apply on the distributable dividend, not the actual payout. Therefore, the net payout to the investor will now be lower.

The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.