There is tax payable on dividends received from investments in shares or mutual funds. Many believe dividends are extra income with no tax, however in India things have changed and they are no more so. All dividends going forward in 2020 are taxable in your hands.
Let us simplify this to better grasp how this works.
Definitions of Dividends
A dividend is money a corporation pays its owners from its earnings. Should you own shares or some mutual fund units, you might be entitled to dividend payments, usually straight into your bank account.
Does the dividend tax payable change?
Definitely yes. Dividends are totally taxable according to present Indian tax rules. Your income tax slab, not a fixed rate, determines the tax payable on dividends.
As a matter of fact,
Should you get ₹25,000 as dividend income:
And your slab comes out as 5% → tax = ₹1,250.
Should your slab be 30% → tax = ₹7,500.
When you file your ITR, you have to include this sum to your “Income from Other Sources”.
TDS on Dividend Income
Should the dividend from one firm be more than ₹5,000 in a year, the corporation subtracts TDS at 10%.
Your income tax return will show this TDS.
You can use Form 15G or 15H to avoid TDS if your income is less the taxable limit.
Foreign Company Dividends
Additionally totally taxable in India are dividends from international equities (such as Apple, Microsoft, Tesla).
Foreign taxes, say 15% in the US, might be deducted at source.
Under DTAA, or Double Taxation Avoidance Agreement, you may seek foreign tax credit.
How should one report dividend income in an ITR under “Income from Other Sources”?
Sort your dividend income according to Form 26AS and AIS.
Accurate TDS data will help to prevent mismatch.
Use ITR-1 (if no capital gains) or ITR-2 (should you have capital gains).
Key Remarks to Remember
Dividends have no unique tax rate; your slab rate determines
Dividend income cannot have any deductions.
Even minute dividend amounts are taxed.
TDS deducted is not the ultimate tax; you can still owe more (or be qualified for refund).
In essence
Your income slab determines the tax payable on dividends rather than a set rate. Whether your dividends are ₹500 or ₹5 lakh, you have to submit and tax based on that. Correct tracking, reporting, and tax planning can help you to remain compliant and maximize your investment revenue.