Is dividend option worth trying post budget 2014?

Budget 2014 has come out with certain changes in the tax structure. One of the most discussed changes is the way dividend distribution tax (DDT) on debt mutual funds is to be calculated from now onwards.Is dividend option worth trying post budget 2014

While Finance Ministry believes it will add more taxes to the treasury, mutual fund managers claim it may hit upon NAV (Net Asset Value) of the fund scheme.

While equity funds don’t attract DDT, debt funds carry it. The latest change will be effective October1, 2004.

Where is the change?

Scenario at present:

For a dividend of Rs 80 declared by a fund at present, DDT comes out to be

28.3/100*80= 22.64

The dividend amount is then deducted from your fund NAV.

 

Scenario post budget 2014:

 

In the latest budget, FM Arun Jaitley has come out with certain changes in the formula saying this “Rs 80” is after tax and the real distributable surplus or the dividend before tax should be 80*100/(100-28.3)= Rs 111.6.

DDT is 111.6 – 80 = Rs 31.6

Now, the amount will increase and more will get deducted from the NAV. Therefore, you lose more now from your NAV – a big loss for someone like me.

How to save yourself from losing more?

Experts believe it’s judicious, in the present context, to go for growth option than dividend option especially if you are in 10%-20% tax slab. For anyone qualifying in 30% tax bracket, either of the dividend or growth option is a good option.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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