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Budget 2020: Government should do away with dividend distribution tax, say tax experts

personal finance | Jan 30, 2020 3:14 PM IST

Budget 2020: Government should do away with dividend distribution tax, say tax experts

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The government should remove dividend distribution tax (DDT) to make India globally more competitive and look at taxing capital gains in a reasonable manner, say tax experts.

The government should remove dividend distribution tax (DDT) to make India globally more competitive and look at taxing capital gains in a reasonable manner, say tax experts.

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As the government brought down corporate tax rate significantly, India has become competitive globally, Samir Kanabar, partner-tax regulatory services at EY, told CNBC-TV18 on Thursday.
The tax rate has come down to almost 17 percent if it’s a new company, otherwise the rate is 25 percent, which is fairly competitive, said Kanabar.
“However, DDT is a killer and over and above that super-rich tax of 10 percent which is applicable to people who receive dividend of about Rs 10 lakh raises the tax rate almost to 42-46 percent given the different tax rates being there. So that makes us uncompetitive."
The dividend distribution tax should be taken out, which will leave out money in the hands of individuals, he added.
"So, there will be a lot of individuals who maybe out of the tax bracket, senior citizens etc., will not pay tax, there will be a lot of individuals who may be in the tax bracket of 10 percent."
He said it will be a balancing act and it will not be a difficult task for the government to achieve this, Kanabar further added.
When asked about long term capital gains (LTCG) tax collection, he said: “We do not have the data as to how much tax government has collected on long-term capital gains, but the feel factor is that it is not a big amount and there won’t be any sacrifice or there would not be any give away if government were to relax capital gains on securities and be at par with the global jurisdictions.”
So there are two asks on capital gains tax -– a) to rationalise the years because somewhere it is one year, somewhere it is two years and somewhere it is 3 years.
Therefore, to rationalise the number of years and in case of doing away with capital gains tax on securities, it will be a much easier tax to rationalise the number of years.
"It will also rationalise the rate because today we still have 10-20 percent and 30 percent rates. So there is need to not only rationalize the years but also rationalize the rate and thereby give a boost to the economy.”
Rahul Garg of PwC said the government should look at taxing capital gains in a reasonable manner. He further said that the government must look at relaxing fiscal prudence to boost consumption.
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