Dividend Taxation in India: Understanding the Latest Regulations

Introduction

Dividends received from shares in India face specific taxation requirements. This article provides a comprehensive overview of the current dividend taxation laws as they stand in India. It begins by explaining the taxation of dividends and the recent amendments to the tax laws. We also clarify the Income Slab Rates applicable to resident Indian taxpayers and discuss the implications of Tax Deduction at Source (TDS) and Advance Tax.

Are Dividends from Stocks Taxable in India?

Dividends received from stocks in India are indeed taxable. Under the Indian Income-Tax Act of 1961, dividends fall under the category of "Income from Other Sources."

The Recent Amendments

Before the Finance Act of 2020, dividends received from domestic companies in India were exempt from tax in the hands of shareholders. However, the Finance Act of 2020 introduced significant changes:

Division of corporate dividend distribution tax into two components: one in the hands of the company and the other in the hands of the shareholder. Abolishment of the dividend distribution tax (DDT). Revocation of the exemption previously available to shareholders for dividends received on or after April 1, 2020.

Tax Slab Rates and Income from Other Sources

Dividends received during the financial year (FY) 2020-21 and the assessment year (AY) 2021-22 are taxed under the "Income from Other Sources" head. The tax slab rates applicable to dividends mirror those for other types of income:

0% for income up to Rs 1,50,000 5% for income between Rs 1,50,001 and Rs 5,00,000 20% for income above Rs 5,00,000

Tax Deduction at Source (TDS)

TDS applies to dividends above Rs 5,000 in an assessment year. For the period from May 14, 2020, to March 31, 2021 (due to COVID-19 relief measures), the TDS rate was reduced to 7.5%. Regardless of the TDS amount, the dividend is still liable to tax based on your income slab rates.

Assessment and Pay As You Earn (PAYE)

The tax on dividends is reported via the Annual Information Statement (AIS) and Form 26AS. Residents receiving dividends must:

Declare the dividend income in their Income Tax Return (ITR). Pay any balance tax liability if the total tax due exceeds Rs 10,000 in the relevant assessment year. Proceed with Advance Tax installments if required.

Forms 15G and 15H - Exemptions for Lower-Income Individuals

Residents whose annual income is below the exemption limit can use forms 15G and 15H to claim exemption from TDS. Senior citizens typically use form 15H, and the company or mutual fund will be responsible for filing the forms.

Conclusion

Dividend taxation in India is a complex but crucial aspect of personal and business income management. Understanding the current tax laws and regulations ensures compliance and maximizes your financial benefits. Regularly updating your knowledge of tax changes will help you stay ahead in the dynamic landscape of Indian taxation.