In the general budget 2020, the government of India is proposing to remove DDT and to introduce classical system of dividend taxation.
A classical system of dividend taxation has very little advantage. If a company does not pay dividends then it can be advantageous in that shareholders will only have a tax liability potentially on the sale of the shares. A classical system could also benefit some international investors. The impact of dividend distribution systems differ based on whether they are applied at the company level or shareholder level. Also, shareholders that are tax exempt would usually not be concerned with a classical system, assuming they are not seeking dividend income.
In light of the tax planning policy, institutions seek to adopt a policy of withholding profits in order to avoid imposing the tax and postpone the process of paying it implicitly through the adoption of legal technical methods that work to avoid paying the tax and benefit from temporary tax exemptions and others to benefit from cash circulation and re-invest money and achieve more profits.
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