So far, the dividend paid to shareholders was taxed in the hands of the companies in the form of dividend distribution tax. In other words, those getting dividends were exempt from tax. In his Budget speech, the FM has kept the dividend tax that companies have to dole out unchanged. But on top of that, he has also decided to tax Indians whose dividend income exceeds Rs 10 lakh. This additional tax will be at the rate of 10%. So in a sense, this is a sort of a double taxation on dividend. It will be interesting to see how this plays out. The immediate reaction was already seen in the stock markets which slid. Clearly, the wealthy and those investing heavily in equities are not too happy with this development. And this in turn could see some reduction in the investments of this set of people in the stock markets. Although it does amount to double taxation the negative impact is not likely to be significant. It is more of a statement of government’s intent to tax the rich. Problem will come if in future years FMs go on increasing the tax rate or lowering the threshold.
(The views expressed by the author in the article are his/her own.)