Getting payback from mutual funds or stocks sounds like free money. Like rent or salary, it is still income, thus personal tax on dividends is relevant. Investing in Indian companies should make you aware of the tax treatment of your dividend income. Let us clarify things for you easily.
Describes what dividends are:
Dividends are payments made from company earnings to its owners. Should you own some mutual fund units or shares, your bank account could get extra income. Dividends earlier on were tax-free for investors. But the regulations have evolved starting in 2020.
Is taxable dividend income now?
Yes. Personal tax on dividends is applicable to investors under current law. Dividend income is thus included in your overall income.
Taxed according to your income tax slab rate:
For instance, you will pay ₹2,000 as tax on ₹10,000 if you fall under the 20% tax slab and get that dividend.
TDS in Dividend Income:
Should your overall dividend from a mutual fund or company in a financial year exceed ₹5,000, they will deduct TDS at 10% before reimbursed to you. Form 15G or 15H can be filed to avoid TDS if your income is less than taxable limits.
Additionally, eligible for a refund while submitting your income tax return is.
Where in ITR would one show dividend income?
Under “Income from Other Sources,” report it. Add the TDS already deducted to adjust against your ultimate tax due.
Methods for Saving Tax on Dividend Income:
Although there isn’t a specific exemption for dividends these days, you can cleverly control taxes:
- Through wise tax planning, stay in a smaller tax slab.
- Reducing total taxable income can be done with Section 80C and 80D.
- If dividend increases raise your income, think about tax-efficient investment choices.
Important Things to Keep in Mind:
- Every dividend is taxable, even from foreign companies and mutual funds.
- TDS kicks in should total dividend cross ₹5,000.
- File your ITR to accurately report income and change TDS.
- It is taxed at your slab rate; no separate, reduced tax rate exists.
Eventually:
Dividend personal taxes are now included into the regular tax procedure. Whether your dividends count ₹1,000 or ₹1 lakh, you have to report it and pay tax accordingly. Still, you can control your taxes and maximize your investment income with careful planning and accurate filing.
