Dividend income from shares and MFs will now be taxable in the hands of the recipient at applicable income tax rates, instead of the company or MF house. Further tax will be deducted at source i.e. TDS on such dividend incomes will be deducted at the rate of 10 per cent if it exceeds Rs 5,000 in a financial year. The dividend income which was hitherto tax-exempt in the hands of taxpayers will now become fully taxable. This would mean that the taxable income of the individuals will go up. Earlier, an individual taxpayer was required to pay tax on dividend only if dividend received from Indian companies was more than Rs 10 lakhs and that too at 10% and no tax was payable in case of dividends received from mutual funds. Domestic companies at present are subject to DDT at 15 per cent (to be grossed up) of the aggregate dividend. And it is also subject to a 12 per cent surcharge and a 4 per cent Health & Education cess, the effective DDT rate comes to 20.56 per cent According to industry and markets, dividend distribution tax is a surrogate tax and it obstructs the flow of foreign direct investment. Therefore, doing away with this tax can give a major push to investment. The abolition of this tax can also boost market sentiment and make Indian equities more attractive. By taxing dividend in the hands of the shareholder, double tax avoidance agreement would become applicable in case of a foreign equity investor and the rate of tax would be determined depending on his shareholding and residence. For instance a U.S. company investing in India will be liable to pay dividend tax at 15 percent if its shareholding exceeds 10 percent as per the DTAA. The rate would be 25 percent in case of a lesser holding. Foreign equity investors will get the benefit of credit of dividend tax paid in India while filing return in his resident country, which was not available under the DDT regime.