Changes in Personal Income Tax in Budget 2020
Abolition of Dividend Distribution Tax
1.
Currently effective DDT rate is 20.56% on
companies declaring Dividend.
2.
It is a major factor to cheer for some high
dividend paying companies like TCS, Infosys, ITC, Vedanta, and many more since
this step reduces the cost of doing business and remove the burden of
compliance on dividend paying companies.
3.
Now Companies will either pay more dividends to
investors or will use those funds to diversify their business.
4.
This DDT is over and above the corporate tax
that companies pay on their taxable profit.
5.
As per current scenario DDT is charged equally
to all individuals since companies have to pay the TAX at uniform rate.
Effective rate is 20.56% irrespective of fact that beneficiary Individual is in
5% Tax Bracket or 30% Tax Bracket.
6.
From FY 2020-21, Dividend will be charged in the
hands of recipient. Hence It is beneficial for those lying in lower Tax
Bracket. Individuals in Higher Tax Bracket have to bear higher rate of tax.
7.
Now
Dividend plans of mutual funds will not be that much beneficial to individual
investors. So it is more beneficial to switch to growth option.
8.
Investors who require regular cash flows can
shift to growth options with a systemic withdrawal plan (SWP). In which one can
choose the date and amount of money they wish to withdraw every month.
9.
In
growth Option and SWP, gain from units sold will be treated as Capital gains
and Indexation is also available in case of LTCG and can enjoy lower tax rate.
10.
Investors whose income is not subject to tax
could continue with the dividend option.
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