Maximizing Dividend Revenue: Important Tax Guidelines Each Investor Ought to Know

New Delhi:

For a lot of traders, dividends really feel like a reward for sensible monetary behaviour. You decide robust firms, maintain them in your portfolio, and obtain common payouts — easy, proper? However relating to taxation on dividend earnings in India, the simplicity typically ends. In response to CA Ruchika Bhagat, MD, Neeraj Bhagat & Co., a number of traders fail to grasp how dividends are taxed, what deductions are allowed, and the right way to report them accurately whereas submitting returns.

Ignoring these features can result in pointless tax funds or scrutiny from the tax authorities. Right here we break down the important thing guidelines and customary loopholes traders are likely to overlook.

1. Dividend Revenue Is Absolutely Taxable — At Slab Charges

Earlier than FY 2020–21, dividends have been tax-free within the arms of traders as a result of firms have been already paying Dividend Distribution Tax (DDT). Nonetheless, the previous regime has modified. At present:

“This implies high-income traders might pay as a lot as 30 per cent + relevant surcharge and cess on dividend earnings. Many traders nonetheless assume dividends are tax-free – a pricey misunderstanding,” Bhagat stated.

2. TDS Applies To Dividend Revenue

In the event you obtain greater than Rs 5,000 in dividends from an organization or mutual fund in a monetary 12 months:

• 10 per cent TDS is deducted by the payer (firm or AMC)

• If PAN isn’t supplied, TDS will increase to twenty per cent

Right here’s what most traders miss:

In the event you fall underneath a decrease tax slab, you need to declare a refund for extra TDS deducted.

“And if no TDS reveals up in Type 26AS or AIS? You continue to must report dividend earnings — as a result of it’s taxable no matter TDS,” she stated.

3. Dividend Advance Tax Legal responsibility

Buyers with important dividend earnings might must pay advance tax if their tax legal responsibility exceeds Rs 10,000 in a 12 months.

Tax legislation expects you to estimate dividend earnings — however since firms don’t announce dividends prematurely, this turns into tough.

The rule gives aid:

Advance tax cost is simply triggered after the dividend is said.

Nonetheless, failing to pay in time can appeal to curiosity underneath Sections 234B & 234C.

4. Deductions Allowed However With A Cap

Underneath Part 57, traders can declare deductions on curiosity expense incurred to earn dividend earnings (like a mortgage taken to speculate). However solely as much as 20 per cent of the dividend earnings earned.

Let’s perceive this with an instance:

Dividend earnings – Rs 50,000

Curiosity paid – Rs 15,000
Deduction allowed – Rs 10,000 (20 per cent of Rs 50,000)

Different bills like advisory prices or demat upkeep should not deductible.

5. Dividend from International Corporations

Dividends obtained from overseas shares or ESOPs are:

• Absolutely taxable at slab price

• Additionally topic to overseas tax, which can be eligible for International Tax Credit score underneath DTAA

Many fail to say the credit score, leading to double taxation.

6. Reporting of Dividend Revenue in ITR

Investor typically don’t report earnings if:

Nonetheless, specialists are of the view that each dividend have to be reported underneath ‘Revenue from Different Sources’. Not reporting can set off mismatch notices, particularly with AIS now monitoring each payout.

“Dividends are an incredible passive earnings supply — however optimising the tax implications is equally important,” Bhagat concluded.

To recap the highest misses by traders: