Which of the following statements with respect to Dividend Distribution Tax (DDT) in India is/are correct?
1. DDT was a tax on dividends paid to the shareholders of a company.
2. Budget 2025-26 has proposed to remove the DDT paid by the companies to investors.
3. DDT was removed to avoid double taxation of dividends and make the Indian Equity Market more attractive.

Correct option is C

The correct answer is (C) Only 1 and 3

Explanation:

• Statement 1: Correct – Dividend Distribution Tax (DDT) was a tax levied on companies when they distributed dividends to their shareholders. Instead of taxing shareholders directly, the company paid the tax before distributing dividends.
• Statement 2: Incorrect – DDT was abolished in the Union Budget 2020-21, not in Budget 2025-26. Hence, this statement is factually incorrect.
• Statement 3: Correct – The main objective of removing DDT was to avoid double taxation (first on companies and then on shareholders) and to attract more investors by aligning India’s dividend taxation with global practices.

Information Booster:

• After the abolition of DDT, dividends are taxed in the hands of shareholders at their applicable income tax rates.
• The DDT used to be charged at an effective rate of around 20.56% including surcharge and cess.
• The removal also enhanced India’s standing among foreign portfolio investors (FPIs), who were previously not able to claim tax credits for DDT paid by companies.