Tax on distributed profits of domestic companies
Chapter XIID contains a special provision relating to tax on distributed profits of domestic companies.  This has only three sections, namely section 115 O, which is a charging section and also prescribes the period, the rate of additional tax, which is payable, and time and manner of payment etc. by company on dividend distributed.  Section 115-P provides for interest payable for non-payment or delayed payment of additional tax by domestic companies. Section 115-Q is about when company is deemed to be in default. 
Basis of charge
DDT is in addition to income tax paid by company
Applicable only on domestic companies
Charged on amount declared, distributed or paid by a domestic company
Applicable on interim and final dividend.
Applicable whether the dividend is paid out of current profits or accumulated profits
Exemption to dividends out of SEZ.
What is dividend?
Definition u/s 2(22) except clause (e).
Why
On perusal of section 2(22) we can find that in case of other modes of distribution of profit, the company may distributes such profit in any manner but it will be to all the shareholders in proportion to the number of shares held by them, if all shares are equal in entitlement. In case there are different types of shares, then dividend will be in proportion to paid-up capital thereon and as per the terms of issue.
Whereas in case of payments which are deemed as dividend under clause (e), the payments are not in proportion to the share holding / paid up capital held by different members.  Therefore, the deemed dividend u/s 2(22)(e) is materially different from other types of dividend-covered u/s 2(22). 
In fact, the company does not declare a dividend of the nature contemplated in section 2(22)(e), rather the company advances certain money with a condition that the same will be in nature of loan or advance, it may bear interest also and it is refundable. 
However, still it is deemed to be dividend in hands of shareholder who receives such payment because the purpose of treating such payment as dividend is to check the practice of giving away money of company to shareholders without paying corporate tax. 
This being the factual and legal position, it appears that such deemed dividends are excluded from the ambit of section 115 O and the company is therefore, not liable to pay additional tax on such payments.
An example:
Company: Dividend Rich Manufacturing Company P. Ltd.
The company is a manufacturing company and money lending is not its business.
Paid up capital Rs.500000/- (500000 shares of Re. 1/- each fully paid-up)
Share holders: A, B, C, and D each holding 125000 shares that is each has a stake of 25% and every one is substantially interested.
Dividend declared Rs.10/- per share Rs.50, 00,000/-. This dividend will have to be paid in proportion of shares held by the shareholders on the record date. In this case as all shareholders hold equal number every one will get equal amount of dividend that is Rs.12, 50,000/- as dividend will be paid to each of A, B, C and D.
The company is required to pay additional tax on the sum of Rs.50, 00,000 distributed by way of dividend under section 115 O.
Suppose, the company has accumulated surplus of Rs.Ten crores. It advances a sum of Rs. one crore to Mr.A as loan bearing interest @ 14% p.a. and refundable after one year.
Mr. A holds 25% (that is not less than 10% voting power) stake in the company and therefore clause (e) of subsection 22 of section 2 is applicable in his case.
Any other shareholder has not taken any loan from the company. Here lies the difference; the loan or advance is not in proportion of capital held. 
The sum of Rs. one crore, is not dividend for the purpose of Chapter XII D as it is expressly excluded from the scope of dividend for the purpose of the entire chapter. Therefore, the amount of loan granted to Mr. A, may be deemed dividend under clause (e) of sub section (22) of section 2 but it is not dividend for the purpose of Chapter XII D. Therefore, the company will not be liable to additional tax on this sum. The shareholder Mr. A, may be liable to tax by deeming such sum as dividend u/s 2 (22) (e), unless, he is able to bring it in some exempted category specified in section 2 (22) or if it can be established that the shares are eligible only for a fixed rate of dividend.
Rate of dividend tax
From April 1, 2010-
Dividend Tax – 15%
Surcharge – 1.125%
Education cess- 0.3225%
SHEC- 0.16125%
Total dividend Tax: 16.60875%
Mitigating the cascading effect
dividend received by assessee company from its subsidiary shall be deducted provided
Subsidiary has paid dividend tax
Same amount is not taken as deduction more than once
Assessee is not a subsidiary of any other company
Time limit
DDT to be paid within 14 days of
Declaration
Distribution or
Payment of dividend
Whichever is earliar.
Dividend income is exempt u/s 10(34) in the hands of recepient.
But dividend tax is not a deductible expence in the hands of company.