New Dividend Distribution Tax w.e.f. October 1, 2014

Computation Of Dividend Distribution Tax With Effect From October 1, 2014

One of the key changes proposed in the Union Budget of 2014 regarding the Mutual Fund (MF) Industry pertains to Computation of Dividend Distribution Tax (DDT) for income distributed by a non-equity oriented mutual fund scheme.

Currently DDT is being applied on net dividend payout. As per Finance (No. 2) Act 2014, the DDT rates will be applicable on gross dividend amount, with effect from October 1st, 2014.

Therefore, while the DDT rate remains the same, the way in which the DDT is calculated would change and the net dividend amount from debt and liquid mutual fund schemes would reduce going forward.

Please find below an illustration on dividend payment considering the change in DDT computation where for easy understanding, we have assumed DDT@25%*:

Prior to Budget 2014-15 As per Finance (No. 2) Act 2014 (effective date Oct 1st 2014)
A.  Dividend declared (in Rs).   100  Dividend declared (in Rs).   100
B.  Net Dividend (in Rs.) B=A/1+DDT   80  Net Dividend (in Rs.) B=(A-C)   75
C.  DDT (25%) C=(A-B) or Bx25%   20  DDT (25%) C=(AxDDT)   25

*DDT Rate for Individuals & HUF.DDT is subject to surcharge and education cess.

DISCLAIMER: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Taxation details mentioned in this email are as per the Finance (No. 2) Act, 2014 and are subject to any clarifications issued by the Government at a later date. All tax-related information is subject to existing tax laws. Investors are requested to consult their tax advisor for further clarification.


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