Tax Treatment of Dividend Income received from Company
Deepshikha | Dec 13, 2021 |
Tax Treatment of Dividend Income received from Company
You may be uncertain how to approach dividend income while submitting your tax return as a taxpayer. Do you have to pay taxes on dividends?
The taxability of dividend income was changed from the dividend declaring corporation to individual investors under the Finance Act 2020.
The old and new tax provisions linked to ‘dividend income’ and their tax effects will be discussed in this article.
In India, a firm must pay a 15% dividend distribution tax if it has declared, distributed, or paid any cash as a dividend. The provisions of DDT were first included in the Finance Act of 1997.
The tax is only payable by a domestic corporation. Domestic enterprises must pay the tax even if they are not required to pay any on their earnings. The DDT will be phased out on April 1, 2020.
The taxability of “dividend income” is currently in the hands of investors, following the repeal of the dividend distribution tax.
The Finance Act of 2020 also allows for interest expense to be deducted from the payout.
The deduction should not be more than 20% of the dividend income. You cannot, however, claim a deduction for any other expenses involved in producing the dividend income, such as commissions or salary expenses.
Only Rs 1,200 is permissible as an interest deduction if Mr Ravi borrowed money to invest in equity shares and paid interest of Rs 2,700 during FY 2020-21.
If a taxpayer’s total tax liability in a given financial year is equal to or greater than Rs.10,000, advance tax provisions apply. If you don’t pay your advance tax liability or pay it late, you’ll be charged interest and a penalty.
Form 15G can be submitted to the corporation or mutual fund paying the dividend by a domestic individual whose projected annual income is below the exemption limit.
Similarly, if a senior citizen’s expected annual tax liability is zero, he or she might send Form 15H to the dividend giving corporation.
The corporation or mutual fund notifies shareholders of the dividend declaration via their registered email address and requests that they submit form 15G or form 15H to collect dividend income free of TDS.
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