Dividend Distribution Tax(DDT)

There has been a change in the method of calculation of dividends, which will result in lowering of dividends received by the investor, though the dividends continue to remain tax-free in the hands of the investor. Earlier the AMC used to pay DDT on the income distributed net of tax. Now the AMC will have to pay tax on the total distributable income.

The formula for calculation of DDT was (x+0.2833x=1) where x represented the amount of dividend to be paid. This worked out to 0.7793 paisa dividend+0.2207 paisa DDT=1. Hence the effective rate of DDT was 22.07%. Now with the change in method of calculation this 28.33% will be charged to the total distributable income, so dividend will be 1-0.2833=0.7167

Thus, due to the change in calculation method, the investor will lose out 6.26% of their dividend income. This will be effective 01 October, 2014.