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Dividend Distribution Tax Interview Questions & Answers - Learning Mode

Dividend Distribution Tax Interview Questions & Answers - Learning Mode

Dividend distribution tax is the tax imposed by the Indian Government on companies according to the dividend paid to a company?s investors. Dividend amount to investor is tax free. At present dividend distribution tax is 15%. From 2016, The dividend distribution tax (DDT) makes a comeback. For an annual dividend income of Rs.10 lakh or more, the investor will pay a DDT of 10%. This means that at an assumed dividend of 10%, an investor will need to have a portfolio of Rs.1 crore, to begin paying this tax.

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Dividend Distribution Tax Interview Questions & Answers - Learning Mode
Try Dividend Distribution Tax Interview Questions & Answers - Exam Mode
Question: What is the Record date for a dividend?

Answer: It is the date on which the share prices represent the corporate benefits declared by the company. The buyers who purchase the shares before the ex-dividend date are entitled to dividend. The book closure date and the record date is always set after the ex dividend date. The ex dividend date is normally set two business days before the record date.

For example, if company ABC declares a dividend to its shareholders, and sets the book closure period 5th July to 7th July, record date as 6th Source:
Question: What is Dividend Distribution Tax (DDT) in case of Mutual Funds?

Answer: The DDT (dividend distribution tax) is also applicable to mutual fund investments but since investments in domestic companies are exempt from this DDT, it is applicable to investments in the money/debt markets. Source:
Question: What are Dividends?

Answer: The dividend is a sum of money regularly paid by a company to its shareholders out of its profits. In short, it is a return that a company gives to its investors. It is announced every year and are generally paid to investors from the profits that a company may have made in that year. The profit that is made by the company is split into parts, with each investor getting a certain percentage of the profit. These percentages are referred as dividends. Source:
Question: What is difference between Dividend Distribution Tax (DDT) in case of domestic and foreign companies?

Answer: Investors can receive dividends from any of these companies. The taxability for each of these company is as follows.

Domestic Companies:

If the investor has invested in a domestic company then the dividends that are announced by that company are not taxable for investors i.e. investors won?t have to pay any tax on the income they received from the domestic company.

Foreign Companies:

If the investor has invested in a foreign company then the dividends that are announc Source:
Question: What is Dividend Distribution Tax (DDT)?

Answer: When a company announces dividends, the amount that is paid as a dividend is liable for the tax. This tax is known as the DDT (dividend distribution tax). DDT is levied on companies by the Indian Government according to the dividend paid to the investors. This is only applicable to those payments that are made to investors by companies in the form of dividends. DDT is payable by the company that is announcing the dividends. Source:
Question: What is Dividend Distribution Tax Rate / Dividend Tax Rate?

Answer: Investors no need to pay tax on the income from dividends. The dividends from the domestic companies are not taxable, but the investors need to pay tax on the dividend from foreign companies. This is not to say that there is no DDT levied at all. Under Income Tax Act, 1961, there is a levy of 15% of the dividend declared as distribution tax. Additional surcharge of 12% on DDT, Education Cess of 2% and SHEC (Secondary and Higher Education Cess) of 1% is levied. Source:
Question: What are the changes introduced in Dividend Distribution Tax (DDT) by Finance Ministry?

Answer: There is no change in the rate of tax i.e. 15%, but the manner of the application has been changed.

Earlier Dividend Distribution Tax at the rate of 15% was computed with respect to the Net Amount paid as Dividend to the Investors. As the DDT was levied on the Net Amount Value instead of the Gross Amount Value, the effective rate of tax was lower than 15%.

So, the Finance Act 2014 has amended Section 115-O in which the dividends would be required to be grossed up for the purpose of Source:
Question: What are different types of Dividends?

Answer: Dividends are of two types. They are,

Preferred dividends: These offer a fixed rate of return.

Variable dividends: These are determined by the profits that the company makes in the year. Source:
Question: What are the taxes on Dividends?

Answer: Any dividend received on shares held in an Indian company is fully exempt from tax. However, companies are required to pay a tax called Dividend Distribution Tax on such dividend at the rate of 17.647 percent. The benefit to the shareholders in a dividend payout is that they don?t have to pay tax as the company will pay 17.647% tax on their behalf.

The dividend distribution tax is charged at a rate of 20.358% for the Financial year 2015 - 2016 (which includes surcharge of 12% plus cess). Source:
Question: How is Dividend Distribution Tax Calculated?

Answer: As per the Section 115-O, there are some rules while calculating the DDT. They are,

Dividends that are once taxed, cannot be taxed 2nd time.

The profits made by domestic company won?t be included in the profit while computing the DDT.

If the subsidiary is a foreign company then the Dividend Distribution Tax will be paid by the parent company of the income from the subsidiary.

The responsibility for paying the Dividend Distribution Tax lies with the company & the princ Source:


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