Finmin makes a budget case for small investors

FM indicates govt may not take a relook at dividend distribution tax

nMUMBAI: Finance minister Nirmala Sitharaman told industry bodies in Mumbai on Friday that the change in dividend distribution tax (DDT) rules was aimed at putting more money in the hands of small shareholders, declaring “let them decide what they want to do with it”.

While admitting that promoters and high net-worth individuals (HNIS) will face a higher tax rate, she justified the move by saying that a vast majority of small shareholders will benefit from it. She indicated that the government would be reluctant to modify the proposal.

On the personal income tax front, the government estimates that 69% of taxpayers are likely to benefit from the new tax regime, while for 11% it would remain tax-neutral.

In the budget presented on 1 February, Sitharaman, in deference to a long-held industry demand, proposed that instead of companies paying DDT, it will now be taxed at the hands of shareholders at marginal rates.

This has left promoters and HNIS a worried lot, with fears that they could face a tax rate as high as 43% when their dividend income is taken into account.

During Friday’s interaction, some investors complained that the projected tax rate was too high, and it puts them at a disadvantage when compared with multinational companies as their shareholders would be taxed at rates prescribed in tax treaties.

Foreign shareholders will also be able to claim tax credit in