Should you invest in mutual funds or shares, you most likely will get dividends. Do you, however, know how dividend in income tax is treated in India? Declaring it accurately helps you stay out of hot water with the tax authorities. Let us grasp this straightforwardly and precisely.
What is a dividend?
A dividend is a profit a company distributes to its owners. Should you be a shareholder of a company and it turns a profit, you might be entitled to a dividend.
In income tax, how is dividend treated?
Companies paid taxes on dividends earlier on, before distributing them to investors. However, under the present rule—from FY 2020-21 onward—the dividend in income tax is included in your income and taxed at your slab rate.
Dividend Income Taxable Rules for Taxation: Investor Taxable
- No company-level Dividend Distribution Tax (DDT) anymore.
- Added to your ITR “Income from Other Sources.”
- Paid in line with your income slab.
- TDS @10% will be deducted should total dividend be more than ₹5,000 from a company.
- For instance, you will pay ₹6,000 tax on dividend income you earn ₹30,000 in if your tax slab falls in 20%.
- Dividend 10% TDS if dividend from one company exceeds ₹5,000/year.
- Should PAN not be provided, TDS will be 20%.
- While you file ITR, you can credit this TDS.
Reporting Dividend Income in ITR: Methodologies
- Get dividend information from your demat or broker’s statements.
- Add overall under “Income from Other Sources.”
- Claim any TDS already taken out.
- Pay extra tax depending on your slab.
Crucial Points Regarding Dividend in Income Tax
- Apart from loan interest, no deductions permitted (Section 57).
- Record payouts from both foreign and Indian businesses.
- Show all dividend income even if it comes under ₹5,000.
Records to Save
- Form 16A: DS Certificates.
- Debit account statements.
- Records of a bank account showing received dividends.
Errors to Prevent Denying TDS on Dividend
- Not displaying alien rewards.
- Missing to announce mutual fund dividend.
Last Advice
- Track all yearly dividend income.
- File ITR-2 whether dividend income comes from many sources or is significant.
- View the income tax page Check AIS (Annual Information Statement).