Tax Treatment of Dividend

Taxability in hands of shareholders (SH)

• S-10(34) – exemption with respect to dividend withdrawn.
• Dividend received during FY 2020-21 – taxable in hands of SH S-115BBDA lost its relevance.

1. Taxable in the hands of the resident shareholder

• A person can deal in securities as a trader/ investor.
• Income earned from the trading activities – taxable under PGBP. If shares are held as an investment then dividend income – taxable under IFOS.

Deductions from dividend income

• Where the dividend is business income, deductions of all those expenditures which have been incurred to earn that dividend income such as collection charges, interest on loan, etc.
• Where the dividend is IFOS, deduction of only interest expenditure incurred to earn that dividend to the extent of 20% of total dividend income. No deduction for any other expenses.

Tax rate on dividend income

• Taxable at normal tax rates as applicable in case of an assessee.

2. Taxability in case of non-resident shareholders including FPIs

• Dividend income, in the hands of an NR person (including FPIs and NRIs), is taxable at 20%. No deductions are allowed.