Are corporate entities subject to tax on the distribution of dividends in India?

Yes, corporate entities are subject to a tax on the distribution of dividends. However, in the case of shareholder dividends, the associated income is exempt from tax. The current effective rate of the Dividend Distribution Tax (DDT) is 16.995 percent (15 percent plus 10 percent surcharge on the 15 percent and an education cess of 3 percent). No exemption from payment of the DDT is granted for the profits related to Special Economic Zones (SEZ) developers.

To avoid a situation of double taxation being created by the DDT, it is permitted that for the purpose of computing DDT, any divided received by a domestic company during any financial year from its subsidiary shall be allowed to be deducted from the dividend to be distributed. This is provided the dividend received by the domestic company has been subject to DDT and the domestic company is not the subsidiary of any other company.