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Wednesday, Oct 09, 2002

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Taxing the investor

The editorial `Don't tax the investors' (Business Line, September 27) rightly pleaded for the grant of the small investors' wish that dividend earnings in their hands be exempted from tax. The current practice of companies deducting income-tax from the dividend has also the serious disadvantage that the investor loses the amount so deducted if he is not an assessee. He has to approach the IT department for the refund of the amount in such cases, a procedure that most investors would find difficult.

The aggregation of the dividend income with other sources of income will not make much of a difference in the tax payable on the dividend-included income, as most small investors receive only small amounts as dividend.

The problem of promoters getting away from payment of tax on the huge dividend payouts can be taken care of by granting exemption from tax of a certain amount, beyond which payment of tax could be insisted on and the assesses made to furnish the total dividend income received as a separate item, to enable the IT department to verify tax liability beyond the exemption limit.

There is another aspect of taxing the dividend. Strictly speaking, what the investors are called upon to pay is a second taxation, as the dividend paid to the investor is from the company's profit after tax. After all, the profit has accrued from the use of the investors' money, whether of the promoters or the small investors. And that tax should be deemed as tax having been paid by the investors.

Yet another point is that the small investors who park hard-earned savings in equities often virtually lose them because many companies do not declare dividends for years on end and often declare a very small per cent on the plea that profits are required to be conserved for the future, whether for expansion programmes or working capital requirements.

Few companies pay handsome dividend and regularly. Even selling off the shares is difficult as they are either not traded regularly or traded at abysmally low prices. Thus, both ways the investors are at a serious disadvantage.

Again, if savings are to be deposited in savings banks or fixed deposits in banks or post-offices, the return as interest is poor due to low interest rates. Senior citizens and retired employees are the worst hit by this.

T. R. Anandan

Coimbatore

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