From mutual funds or shares, are you getting money? Then you must be aware of dividends tax rates. Dividend income tax in India has undergone some significant changes following 2020. Here in simple language is all you need to know.
Dividend Income: What is it?
Dividend income is what you get when a company distributes part of its profit to its owners. Should you own mutual funds or stocks, you could get dividends straight into your bank account.
How are Dividends Tax Rates Calculated?
Dividend income taxes the investor rather than the company since April 1, 2020. Your whole income and tax slab determine the dividends tax rates.
Fundamental Points:
- Your whole income now includes dividend income.
- Taxed according to your income tax slab—5%, 10%, 20%, or 30%.
- Dividend taxes are not set; your entire income determines the rate.
For instance:
- Dividend is taxed at 10% if your income falls under the 10% slab.
- Dividend is taxed at 20% if your income falls under the 20% slab.
TDS in Dividend Income
- TDS @10% is deducted if dividend income from a company exceeds ₹5,000 in a financial year.
- Should you fail to provide your PAN, TDS @ 20% will apply.
- You can pick this TDS while working on your ITR.
Member Fund Dividend Income
- Handled the same manner as corporate dividends.
- Added to your income and subject to slab rates of taxes.
- TDS only applies if it crosses ₹5,000 per company or mutual fund.
Authorized Deductions
- Under Section 57, you can only claim interest expenses (up to 20% of dividend income).
- No other deductions are allowed against dividend income.
Regarding Foreign Dividends, What About Them?
- Paid at India’s flat thirty percent.
- Under DTAA, you could be eligible for a tax credit should tax have been paid abroad already.
Suggestions for Control of Dividend Taxation
- Track dividend income frequently.
- If qualified, file forms 15G/15H to avoid TDS.
- Use ITR-2 for foreign stocks or multiple-source dividend income.
- For dividend entries, review your Annual Information Statement (AIS).