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Friday, Mar 08, 2002

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Taxability of dividend

The Finance Minister has transferred the taxability of dividend from the company to the shareholders. The company has to deduct tax at source in the final annual statement and the shareholder has to struggle to get the refund.

If the Finance Minister's objective was to tax the dividend at the maximum rate possible, he could have levied a 30 per cent dividend tax from the company. Quite a lot of paperwork and man-hours would be saved, as verification of the TDS is not necessary.

In fact, the workload could be considerably reduced if the banks and companies that are now obliged to file return of income year after year are also compelled to pay tax on interest payment by them so that the interest people get is free of tax though, for all practical purposes, the economic law will take care of itself and the interest rate of term deposit would automatically adjust itself.

If the RBI does not interfere, there will be healthy competition among banks and the interest rate will stabilise at a reasonable level.

The Finance Minister's step of transferring the taxability of dividend from the company to the shareholder is a retrograde step, causing considerable inconvenience to the recipient.

E. V. Subramanyan

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