Tax on Dividend Income

I hold shares of a company that has sent me an email that it would deduct TDS on the dividend it pays on my equity shares. Why does tax need to be deducted from my dividend?

Hey @Rachit_Awasthi1,

Under Budget 2020, the Finance Minister abolished Dividend Distribution Tax i.e. DDT. As a result, dividend became a taxable income. Since it was now taxable, TDS would be applicable on it. Thus, the Budget also introduced the provision to deduct TDS on the dividend.

  • Sec 194 - A Company should deduct TDS at 10% on dividend paid on equity shares if the dividend amount exceeds INR 5,000. For FY 2019-20, this rate is reduced to 7.5%
  • Sec 194K - An AMC should deduct TDS at 10% on dividend paid on equity mutual funds if the dividend amount exceeds INR 5,000. For FY 2019-20, this rate is reduced to 7.5%

TDS (Tax Deducted at Source) is applicable to many taxable incomes such as salary, professional fees, interest, commission etc. Since dividend income is a taxable income, TDS is applicable to it.

You can claim the credit of deducted TDS as taxes already paid when you file your Income Tax Return. If the tax liability is more than TDS credit, you need to pay only differential tax. If the tax liability is less than TDS credit, you can claim a refund of the excess amount.

If you have received an email for dividend you can know more about TDS on dividend paid in FY 2020-21 in the article mentioned below.

I am salaried person, gross income 10 lakh and comes in individual resident category. I invested in share market and also get dividend 8000. But i am confused that how much dividend amount is tax-free in below options:

  1. TDS will be deducted at 10% on dividends received above INR 5000.

  2. Tax of 10% on dividend income in excess of Rs. 10 lakh per year.

so which option is correct for current FY and option 2 is applicable to whom ?

@Laxmi_Navlani @Divya_Singhvi @AkashJhaveri @Kaushal_Soni can you?

Option 2 of 10 lakhs applicable to which category ?

Hey @Kuldeep_Singh,

From AY 2021-22 onwards, dividend received by shareholder will be taxed in the hands of shareholders and not on company. Dividend is not tax free income and hence if total dividend exceeding of Rs. 5000 is liable to deduct TDS u/s 194 at the rate of 10%.

Prior to AY 2021-22, tax on dividend was applicable to shareholders only when total amount exceeds 10 lakhs but now there’s no relevance of sec.115BBDA.

For more understanding, you can refer below article for taxation on dividend income:

Hope, it helps!

Hi, I have a dividend which is declared on 31-03-21, but it is not credited in my bank account on this date, it was just declared, now while filing ITR for FY-2021 , should I count this dividend for FY21 or since this dividend is credited after FY-21 to my bank account, I should include it next year.
kindly help me with this,

Hey @Sheirsh_Saxena, you will declare this income in the assessment year of the corresponding financial year in which you receive this dividend income. You can read more about it from here:

Hi, I hold units of an INVIT, particularly IRB invit fund, which quarterly payout an amount, but each quarter I have received an amount less than the mentioned per unit, since the TDS was being deducted on it, each quarter.
Is there any way I could receive the TDS amount back, and how,
I have recently received a form 16A from IRB invit fund ,which shows 3000 has been paid as TDS already.
Any suggestions, how does it work.

Hey @Sheirsh_Saxena,

You can claim the TDS deducted by filing your ITR.

Here’s an article, where you can learn more about Taxes on Dividends.

Hello,
Please could you confirm if dividends received for Liquid Bees appears under the PnL figures from the data fetched from the Zerodha portal.

Thank you
Clayton

Hi @Clayton

You can refer to the following answer by Nithin Kamath.

If you need further clarification, feel free to reach out.
Will be happy to help. :slight_smile:

@Clayton

Hello!

Dividend in case of Liquid Bees is credited in form of units to the demat account of the investor. Since DDT (Dividend Distribution Tax) was abolished in Budget 2020, the dividend is now taxable in the hands of the investors.

As per the Tax P&L Statement from Zerodha, details of units of Liquid Bees would appear only when such units are sold.

  • Tradewise tab - Under this tab, the data is reflected tradewise. Thus, you’ll be able to see sell price and buy price for each trade executed.

  • Mutual Funds tab - Under this tab, data is reflected scripwise. Thus, avg sell price and avg buy price shall appear for liquid bees fund. If you have sold dividend units of liquid bees, avg buy price would reflect average of original buy price and buy price of dividend units i.e. 0

Since Dividend distribution tax is abolished, is dividend now taxable in hands of the shareholders?

Hi,

Yes, Dividend is now taxable in the hands of the shareholders as per the applicable income tax slab rate. If the dividend you receive is above INR 5,000 - 10% TDS will be deducted u/s 194.

I am an investor holding shares of a Company. The dividend I received is less than the amount I should have received.

Hey @rajat1993,

You have received less dividend since the Company has deducted TDS on dividend and credited the remaining amount to your account.

Under Budget 2020, the Finance Minister had introduced provisions to deduct TDS on the dividend.

  • Sec 194 - A Company should deduct TDS at 10% on dividend paid on equity shares if the dividend amount exceeds INR 5,000.
  • Sec 194K - An AMC should deduct TDS at 10% on dividend paid on equity mutual funds if the dividend amount exceeds INR 5,000

As per the above provisions, the Company / AMC would deduct TDS on dividend paid on or after 1st April 2020. Due to COVID-19, the TDS Rate was reduced to 7.5% for the remaining part of FY 2020-21.

Read more here - TDS on Dividend paid in FY 2020-21

As per the new TDS sections, the TDS Rate is 10% on dividend income. I have received email from my Company for deduction of TDS on dividend. Why does the email mention 7.5%?

Hey Tanya,

The Finance Minister abolished DDT under Budget 2020. She also introduced the following provisions to deduct TDS on dividends.

  • Sec 194 - A Company should deduct TDS at 10% on dividend paid on equity shares if the dividend amount exceeds INR 5,000.
  • Sec 194K - An AMC should deduct TDS at 10% on dividend paid on equity mutual funds if the dividend amount exceeds INR 5,000.

On 13th May 2020, the government slashed TDS Rates under certain sections by 25% on account of COVID-19. Thus, the TDS Rate under Section 194 (TDS on Dividend on Equity Shares) and Section 194K (TDS on Dividend on Equity Mutual Funds) was reduced from 10% to 7.5% for the remaining part of FY 2020-21.

Have you received an email for deduction of TDS on dividend - Read more here - TDS on Dividend paid in FY 2020-21