Budget 2020 has changed the manner in which dividends are taxed. How will the tax be paid on dividends between group companies and how will insurance companies meet this tax liability?

Dividends will be taxed in the hands of the recipient and not the company that is declaring a dividend.

Company declaring dividend will withhold tax at the rate of 10 percent while making payout.

Recipient to pay tax on dividend as per applicable slab rate.

Tax credit of 10 percent withholding tax to be available to recipient shareholder.

Dividend tax chain remains same irrespective of direction of flow of dividend.

Dividend tax chain same for dividend from parent to subsidiary and vice versa.

In the case of insurance that is not true, the insurance policy buyer doesn’t have to bother with dividend tax, the insurance company will pay it at its own level as per its corporate tax rate so no problem for ULIPs, but mutual funds holders will have to pay the tax liability.