Shares of multinational companies such as Hindustan Unilever, Nestle India and Britannia rallied 4-5 percent on February 3 after the abolition of dividend distribution tax (DDT) in the Budget.
Finance Minister Nirmala Sitharaman, in her Budget speech, said to remove the cascading effect, she proposed to allow deduction for the dividend received by holding company from its subsidiary. "The removal of DDT will lead to estimated annual revenue forgone of Rs 25,000 crore," she said.
At present, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 percent plus applicable surcharge and cess in addition to the tax a company pays on its profits.
She said non-availability of credit of DDT to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them.
Hence, to increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, she proposed to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay the tax, she added.
"The dividend shall be taxed only in the hands of the recipients at their applicable rate," she said.
Hence, Castrol share price rallied 5.33 percent, HUL up 5.01 percent, Nestle up 5 percent, SKF India up 4.79 percent and Britannia Industries up 4.28 percent at Rs 3,230.05.
Among others, Oracle Financial Services, Abbott India, Colgate, Hexaware Technologies, Maruti Suzuki, Bata India, Ambuja Cements and Kansai Nerolac rose 3-4 percent.
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