How will the tax on dividend play out when a company declares dividend before March 31, but shareholders receive the money on or after April 1? The law has left a gap for overzealous tax officers to interpret it in a way where both the company and shareholders are asked to fork out tax.

According to the amendments proposed in the Union budget, the dividend distribution tax (DDT) would not be payable by companies or mutual funds (as per section 115-O / 115-R, respectively) in respect of dividends or income “declared, distributed or paid” after March 31, 2020. Simultaneously, the earlier tax exemption given to investors – under section 10(34) and 10(35) of the Income Tax Act – on dividends from shares and MF units would now be removed with effect from April 1, 2020.

Thus, while DDT is payable on any dividend/income which is “declared, distributed or paid” up to March 31, the tax exemption is removed on dividends “received” after March 31.