Taxability of Dividend

Taxability of Dividend

After  the very moment of budget 2020 declared by Finance Minister Nirmala Sitaraman , Every 2nd person is having a doubt about the taxability of Dividend Income because earlier, it was not taxable  in the hands of the recipient.

Do I have to pay tax on Dividend ?

So Dont Worry about it and read the full article , All Doubt of Yours regarding Taxability of Your Dividend Income Will be vanished .

We earn Dividend from 2 Types Of Company

  • Indian Company
  • Foreign company

Dividend Received from an Indian Company

Dividend received from an Indian co. was exempt until 31 March 2020(FY 2019-20). Because  the co. was already paying DDT before distributing dividend to its shareholder.

Now , the Budget has proposed a shift to classical system of taxing dividend in the hands of shareholders/unit holders from 1st April, 2020.Consequently , The DDT liability on companies and mutual funds stand withdrawn. Similarly, the tax of 10% on dividend receipts of resident individuals, HUF and firms in excess of Rs 10 lakh (Section 115BBDA) also stands withdrawn.

Taxability on Following assessees :

Resident : Tax shall be payable by the resident assessee as per normal slab applicable to them .

Now Dividend income will also be subject to TDS

TDS on dividend @10% u/s 194 and 194K for amount exceeding Rs 5000 in a year  . However, as a COVID-19 relief measure, the government reduced the TDS rate to 7.5% for distribution from 14 May 2020 until 31 March 2021.

A resident individual receiving dividends whose estimated annual income is below the exemption limit can submit form 15G/15H to the company or mutual fund paying the dividend.

Non Resident( not being a company)/ Foreign company) :

Dividend is taxable @ 20% in the hands of Non Resident

Dividend paid by Indian Company outside India shall be taxable in India. However, dividend paid by the co. having POEM (place Of Effective Management ) In india as per Section 6 of Income Tax Act, but such company is not an Indian Company, then the dividend paid by such company outside India shall not be taxable.

Dividend Received from Foreign Company

Dividend received by Indian Company from the foreign company in which such company holds minimum 26% of nominal equity share capital of the foreign company shall be taxable @ 15%

Dividend received by Residents of india other then company shall be taxable at applicable slab rates.

Deduction to Domestic Company is available to the extent dividend received as restricted to dividend distributed by the company received from any other domestic company, foreign company or business trust upto the specified date i.e one month prior to due date of income tax return for the previous year.

Deduction of Expenses from dividend 

Only Deduction from the dividend income shall be allowed upto 20% of Dividend income for Interest expenses, only if the loan had been taken for the purpose of  the investment in shares of the company.

For Example :

X ltd has received Dividend from Domestic co. and foreign co. is Rs 20lakh ,    & it has distributed 15 lakhs as dividend then

Dividend received = 20 lakhs

(-)Dividend paid   =  15 lakhs

 5 Lakhs will be taxable in the hand of X ltd.

Ex : Mr Raushan comes under 20% slab rates . He has received Dividend income from:

Indian Co. : Rs 7000/-

Foreign co. : Rs 2000/-

Indian co. will deduct TDS @ 10% since amount is more then Rs 5000. Mr raushan will get Rs 6300(7000-700)

Rs 9000 will be taxable Under the head of “Income from Other Sources” @ 20% (since he is under 20% bracket)

Note : Foreign co.is not eligible to deduct TDS

TDS rate would be 7.5% if the amount of dividend has been received during 14th may 2020 to 31st Mar 2021.

Press release for TDS applicability can be accessed through this link:

Press-Release-CBDT-issues-clarification-on-the-applicability-of-TDS-provisions-dated-4-02-2020

Press release for Reduction in TDS rates on account of COVID 19 relief measure

Press-Release-Reduction-in-TDS-TCS-Rates-dated-14-05-2020

 

 

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