The Hindu Business Line : ‘Dividend distribution must not be tax-induced’

This is the main reason why the Budget has proposed a hike in the tax rate on short-term capital gains from 10 to 15 per cent, the rate of tax when dividends are distributed.

“We want them (management and shareholders) to decide what kind of dividend distribution policy they should adopt, rather than such policy being tax-determined or induced. It is not for us to tell them whether they should distribute or keep them as retained profits,” a CBDT (Central Board of Direct Taxes) official said.

The official pointed out that while the amount distributed as dividend got taxed at 15 per cent, the amount retained got reflected in capital gains and that it was taxed at 10 per cent when shares were sold within 12 months.

“The idea was to get out of that situation and ensure that there was equality in the short-term capital gains and dividend distribution tax,” the official said.

In his 2008-09 Budget speech, the Finance Minister, Mr P. Chidambaram, said that there was “merit” in equating the tax rates on short-term capital gains and dividend distribution tax.

The Finance Ministry officials maintained that the Budget was a “totally pro-corporate” one, highlighting that every proposal at the end of the day benefits the corporate sector, including the one to rejig the tax slabs for individual taxpayers, which would put more money into their pockets.

More Stories on : Taxation | Dividend Announcement | Budget

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