The tax law panel is considering reverting to the classical method of taxing dividend in the hands of the shareholders

Members of the task force set up to draft a new direct tax legislation may favour abolishing dividend distribution tax (DDT), according to a report by The Times of India.

The tax law panel is considering reverting to the classical method of taxing dividend in the hands of the shareholders, it said. Sources told the newspaper that the objective is to boost investment from abroad. Currently, DDT casts a burden on foreign investors.

It is currently difficult for foreign investors to claim foreign tax credit (FTC) as DDT is borne by the company, not by them.

Currently, dividend income is tax free for foreign shareholders and an Indian company declaring dividends has to pay DDT at 20.55 percent, which includes surcharge and cess.

Abolition of the securities transaction tax (STT) to stop double taxation could also be on cards, the report suggests, as the 2018-19 Union Budget introduced tax on long term capital gains exceeding Rs 1 lakh on sale of listed securities.

The panel, led by Central Board of Direct Taxes (CBDT) member Arbind Modi, is expected to submit its report to the Finance Ministry soon, the report said. It remains unclear if the report will be made public for public comments.

Moneycontrol could not independently verify the report.

Some tax residents of India such as individuals, Hindu Undivided Families (HUFs) and firms having dividend income of Rs 10 lakh or more on aggregate pay tax at 10 percent, excluding surcharge and cess.

With the US lowering its corporate tax rate from 35 percent to 21 percent, the report suggests that India’s maximum marginal rate of 35 percent for companies with a turnover of more than Rs 250 crore and DDT of 20.55 percent is being seen as an obligation.