The government is considering scrapping a dividend distribution tax in its annual Budget this month, as part of efforts to boost investor sentiment, Bloomberg Television reported on Thursday, citing unnamed sources.

Indian companies are liable for additional tax on any amount distributed or paid out to shareholders. Before the introduction of the dividend distribution tax, shareholders were liable for taxes on the dividends they received.

No comment was immediately available from the Finance Ministry, which is in lockdown mode as it prepares to unveil on February 28 the first full-year budget since Prime Minister Narendra Modi's election victory last year.

Unlike many other countries, India taxes companies on their payment of dividends to shareholders at a rate of 15 per cent. Scrapping the levy could increase net payouts and boost the attractiveness of Indian stocks.