Dividend exemption is proposed to be withdrawn after 31st March 2002 with a simultaneous withdrawal of 10.2% dividend tax. Let us look at what made change the age-old principle of dividend taxation in the fist stage. Previously section 80M deductions caused blockade in the collection of revenue due to chain of companies. For instance earlier the dividend distributed by companies went untaxed between holding- subsidiary and sub-subsidiaries. To check such distribution the Government imposed dividend distribution tax every time the dividends are distributed. Today after the businesses are consolidated in single company the Government has brought back dividend taxation though withdrawn distribution tax, to best use the situation. In this process the person who suffer is an average investor.
Ever since this budget has been announced one can see an article each day pointing out to the companies proposing to pay interim dividends to take advantage of last drawn opportunity by making such declaration on or before 31.03.2002. In my opinion when the government can introduce clever amendments in law of such nature there is no reason whatsoever for such companies to stop themselves from making such declarations to save tax.