Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: VAT RATES :: cpt :: due date for vat payment :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: VAT Audit :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: articles on VAT and GST in India :: list of goods taxed at 4% :: ACCOUNTING STANDARD :: TDS :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: form 3cd
General »
 Banks warn share tax hike threatens Paris' post-Brexit appeal
 PMC may decide on property tax rebate for IT firms this week
 I-T Dept is giving out certificates of appreciation. Have you received yours?
 Government works on ironing out benefits refund mechanism for exportersa
  Tax officials are using an IDS provision to question transactions beyond six-year-limit
 Tax-free bonds rally like midcap funds
 Senior citizens do not have to pay advance tax on salary and interest income
 GST: Audit commissioners to get adjudication powers
 Interest on NRE rupee account can be exempt from tax under FEMA
 Impact of GST on Real Estate Sector
 GST regime: Tax payers allowed to take option of third-party interfaces

Tax investors, not companies
January, 19th 2010

SEBI and the Reserve Bank want to stop companies and banks from putting their money in mutual funds (MFs). They prefer to invest through MFs because of a tax arbitrage: dividends distributed by debt MFs attract a lower rate of tax as compared to income generated by direct participation in the market.

This tax arbitrage is irrational and must go. The government should scrap dividend distribution tax (DDT) levied on companies and instead tax dividends in the hands of shareholders. The original rationale for a DDT to replace tax on dividends was administrative ease and evasion of tax by a variety of investors.

A practical way out is to mandate electronic crediting of all dividend payments and presumptive deduction of 30% tax at source. This was not possible in 1997 when DDT was first introduced and when bank computerisation was still patchy. Investors who fall in the lower tax brackets of 10% and 20% can claim refunds. Income-tax authorities must, of course, streamline refunds, in tandem.

In effect, dividend income should be taxed according to the individual shareholders tax slab. A change in the tax treatment on dividends will have multiple benefits. It would boost the governments revenues, as promoters, who have been paying themselves hefty, tax-free dividends, pay 30% tax on their income. It would end the tax arbitrage on investments in MFs and, thereby, remove the artificial incentive companies have for carrying out their treasury deployments through MFs.

Similarly, it would remove a large part of the incentive that banks have for lending to one another and to companies via MFs. There would be greater transparency on bank lending. Such a move would, in addition, restore salience to the role of MFs as vehicles for retail investors to invest in securities. And all MFs can have tax pass-through status.

The short point is the superiority and administrative ease of taxing dividends in the hands of shareholders as compared to taxing companies for the dividends they distribute. In the long run, as and when all tax exemptions are removed, and tax revenues rise to required levels, dividends could be exempt from tax altogether.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Bath SEO Company Birmingham SEO Company Bradford SEO Company Brighton and Hove SEO Company Bristol SEO Company Cambridge SEO Company Canterbury SEO Company Carlisle SEO Company Chester SEO Company Chichester SEO Company Coventry SEO Compan

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions