The dividend potential
15,570 8,380 4,890 3,730
After DDT is abolished on companies, their cost of dividend distribution will go down. On a conservative estimate, India’s top 60 firms can return
crore of surplus cash to their shareholders.
Graphic: Sarvesh Kumar Sharma/mint their home jurisdiction, putting them at an advantage over domestic shareholders.
In response, Sitharaman reasoned: “If you look at taxation now for taxpayers whose applicable rate is below 15% or 20%, the abolition of DDT is conducive. For promoters and HNIS, it wasn’t suitable earlier and it is worse now. But you are thinking of one section, while we want to put money in the hands of the other section. We want to give money in the hands of the small retail shareholders—let them 36.60 11.20 14.70 decide what they want to do with it.”
Anticipating a huge tax payout for promoters, many companies have already announced interim dividends, while others have called board meetings to consider paying out interim dividends before the fiscal-end.
“A very small proportion of tax payers will have such high dividend income to push them to the highest tax bracket. For small shareholders this is a better regime as they will continue to be taxed at marginal tax rates. We already are seeing many companies moving to pay out dividends, but I do not believe this will sustain as many companies’ highest revenue are in the last quarter, so a dividend payout is unlikely,” said Deepak Shenoy, founder and chief executive officer, Capital Mind, an investment research firm.
The government also clarified that based on the income tax 13 37.30
WHILE ADMITTING THAT PROMOTERS WILL FACE A HIGHER TAX RATE, THE FM JUSTIFIED THE MOVE BY SAYING THAT SMALL SHAREHOLDERS WILL BENEFIT FROM IT
returns of 2018-19, it ran a simulation, which showed that the majority of taxpayers would benefit from the new regime.
The budget proposes a dual taxation regime—one with lower tax rates and no exemptions, and the other at existing tax rates with exemptions. This led to speculation that the new tax regime is not as beneficial as the prevailing one.
Over concerns that the lack of tax benefits will disincentivise investments, Sitharaman said she wants to leave it to taxpayers on what they would like to do with the money.
“Our discussions show that this is the old-fashioned way of directing investments, and is limiting options to the taxpayer. If he wants to spend his money in this economy, it is welcome. If he wants to save where he wants to, that’s welcome. We wanted to address this, and this is where we went.”