Imputation system

Imputation System – The imputation system is a tax policy designed to avoid double taxation of corporate profits. Under this system: When a company earns profits, it pays corporate tax on those earnings. The tax credit for the corporate tax paid can then be passed on to shareholders when dividends are distributed. Shareholders can offset the corporate tax already paid against their personal income tax liability on dividends. Purpose and Benefits: Promotes fairness: Prevents the same income from being taxed twice. Encourages investment: Shareholders receive a net benefit, increasing the attractiveness of equity investments. Reduces tax burden: Aligns corporate and personal taxation for distributed profits. Example: A company earns ₹1,00,000 in profit and pays ₹30,000 as corporate tax. It distributes ₹70,000 as dividends. Shareholders can claim a ₹30,000 tax credit, reducing their personal tax liability on dividend income.