InvestorQ : Can you explain DDT on dividends on debt funds with an illustration?
Mahima Roy made post

Can you explain DDT on dividends on debt funds with an illustration?

Answer
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Aditi Sharma answered.
1 year ago


Let us take the case of Temple Bond fund which is paying out dividends to its debt fund holders having dividend plans at the rate of Rs.4 per unit on the debt fund. Sangeeta holds 1000 units of the Temple Bond fund. How much dividend does she actually earn on hand?

Let us see the actual effect of the gross and the net dividends paid out by Temple Bond Fund:

Particulars

Calculation

Amount

Units Held by Sangeeta

1000 units

Dividend declared

Rs.4 per unit

Rs.4,000

Calculation of DDT

(Rate of tax @ 25% X Surcharge @ 12% X Cess @ 4%)

29.12%

DDT on dividends

(4000 x 29.12%)

Rs.1,165

Net dividends received

Rs.2,835

As can be seen from the above illustration, the DDT tends to reduce the net dividends in the hands of the investor. Such DDT deducted from the dividends has to be deposited by the fund into the government treasury within a period of 7 days from the payment of the dividend. While dividends continue to be tax free in the hands of the investor, the high incidence of DDT almost makes that meaningless.