What are dividends and how are they taxed?

Income Tax
1

Whenever a company generates a good amount of profits, they have the choice to either reinvest the entire money back into the company’s growth or share a part of it as a reward to its shareholders which is what we call dividend.

So, say you own 1000 shares of Company A and they announce a dividend of ₹10 per share, you’d get ₹10,000 as dividend and this money is something that you get over and above the capital appreciation of the stocks that you own.

Now, when a company announces dividend, there are a few important dates that you need to look out for:

  • Announcement date: The date on which the company management announces the dividend.
  • Ex-dividend date: This is the date that would matter the most to you as it decides whether you are eligible to get the dividend. You need to buy the shares at least 1 day before this date to qualify. If you buy shares on or after the ex-dividend date, you will not be eligible for the dividend.
  • Record date: This is when the company checks its records to identify the eligible shareholders.
  • Payment date: The day on which the dividends are issued and the cash lands in your bank account.

:bulb: There’s a ratio that helps investors determine how much dividend a company is paying relative to its current market price which is called dividend yield. It is calculated using the following formula:

Dividend Yield% = (Dividend per share / Current share price) * 100

How are dividends taxed?

Any dividends that you receive from your stock investments are taxable at slab rates and these are reported under the head ‘income from other sources’.

Moreover, if your dividend income exceeds ₹5000, the company paying you is liable to deduct a 10% TDS.

So, if you receive ₹10,000 as dividends from company A, they’ll deduct a 10% TDS and you’d end up with ₹9,000 in your pocket instead.

Moreover, you’ll have to report this dividend income as ‘income from other sources’ while filing your ITR. Say, you also have a salary income of ₹20L, which makes you fall in the highest tax slab of 30%. This ₹10,000 dividend will be added to your total income, and accordingly, the tax liability will be calculated on ₹20,10,000.

Remember, you will be able to claim the ₹1,000 TDS as tax credits while filing your ITR.

:bulb: For NRIs, the companies are liable to deduct a TDS of 20% and the individual is required to report it under ‘Income chargeable at special rates.’

Can I claim any expenses against the dividend income?

If you have taken a loan to purchase stocks and receive dividends on them, you can claim the interest paid against such loans as a deduction. This deduction can go up to a maximum of 20% of the dividend income you earn.

So, on your dividend of ₹10,000, you can claim a maximum deduction of ₹2,000 as a deduction if you have taken a loan to buy those stocks and are paying interest on the same.

2 Likes
2

Hi

I am an F&O Trader and also derive income from interest on deposits, rent and dividends. I understand that F&O trading income is reported as business income and the rest are reported as income from other sources. Since all these attract tax at the individuals’ slab rates, can I aggregate these and claim expenses incurred in F&O trading, and pay tax on the net, even if the trading activity resulted in a loss?

3

Hi @gdshan

FnO is a non-speculative business income, taxed under Income from Business & Profession, interest on deposits & dividends are taxed under IFOS and rental income is taxed under Income from House Property.

Yes, true, all the incomes are taxed at the slab rates, but set off and carry forward of loss under different income heads have different rules.
You can set off your FnO losses in the current year against all incomes except salary and pay tax on the income after setting off. In future years, it can be set off against business income (both speculative and non-speculative). The loss can be carried forward for 8 years.

Hope this helps.

4

Hi. I’ve dividend from few equities. On 5k plus dividend amount, TDS is credited and is seen in Form 26AS as well as IAS. But for lesser dividend amount, there’s no TDS. Is it mandatory to declare sum of all non-TDS credited dividend and under what head it should be reported?

5

Hi @msachin

Any dividend income earned during the financial year should be reported, irrespective TDS has been deducted or not. Dividend income is reported under the “IFOS” head and taxed at the applicable slab rate.

6

Hi @Shrutika_Shah

Is the above applicable only if loss on F&O business still exists for that year after setting off against all incomes except salary?

7

Hi @gdshan

Yes, FnO losses in the current year can be set off against all incomes except salary. If still, any losses remain, it can be carried forward for 8 years after set off.

8

If my divident income is Rs.5500. whether I get deducion of Rs.5000 from divident income.or I should declare total amount

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Hi @Ajith_Kumar

The limit of ₹5,000 is for TDS to be deducted.
In your case, if the annual dividend income is ₹5,500, you will have to declare the entire amount of the dividend in your ITR under “Income from Other Sources.”

10

For NRI… is stock dividends income declared as “income at special rate” or “normal income charged at applicable rate”?
How about dividend income from mutual funds for NRI?

11

Hello, Where to show the income received from REITs in ITR 2 and how to claim exemption in the return? Is income distribution from Mindspace and Embassy fully exempt from tax?

12

Hi,
I entered my dividends (6400) in other income sources and while reviewing the tax filling, it is directly adding to Total headwise income. since it is 6400, I need to only pay Tax for 1400 only right. How I can resolve in Quicko.

Other than the above, LTCG also adding to Total Headwise income. Even for LTCG below 1,00,000 is not taxable, but now it is considering for Taxes.

Please advise how to change in tax filling to reduce my tax.

13

even i have the same problem…let me know if you get the answer

14

Hi @Roopam_Saxena

Dividend income earned by NRI is taxed at a special rate of 20%.

15

Hi @Shweta_Agrawal

Income received from Real Estate Investment Trusts (REITs) needs to be reported as dividend income. It should be reported under the head “Income from Other Sources” (IFOS) in ITR.

And the income distribution from REITs, such as Mindspace and Embassy, is not exempted from tax.

16

Hi @praveen_dwibhashi @Sushil

The LTCG exemption of Rs. 1,00,000 is taken into consideration by Quicko.

It is just shown on the interface as a taxable income for the purpose of reporting, however, the same is not considered for the computation of tax.

You can verify the same by referring to the 15th Point in the computation of income i.e. ‘tax payable at a special rate’, where it is calculated after considering the Rs.1,00,000 exemption.

Hope it helps.

17

Hi Can you please tell solution for the below

I entered my dividends 5500 in other income sources and while reviewing the tax filling, it is directly adding to Total headwise income. since it is 5500, I need to only pay Tax for 500 only right. How I can resolve in Quicko.

18

Hi, I checked the 15th point, it is adding up extra tax.

Point 10 gross total income should be (6-7-8-4-3) and Point 15 should be calculated based on Point 3 and 4.

My total taxable salary is 10,07,636 and my total deductions are 2,32,633. STCG is 2989, LTCG is 15638 and from dividends I got 6763. Point 6 & 10 is showing the taxable income by adding up all the above mentioned income sources.

After my tax calculation basis of my total taxable salary, I should pay 67,500 + 448.35(STCG) + 352.6 (Dividend income) - Total tax - 68,300.95 + CESS.

But In Quicko it is showing 69,301. Please check and let me know.

19

Hi All,

Can someone pls tell me if dividend received from STF are taxable and do i need to declare if less than 5000

Or should i only add TDS/TCS dividend which is auto populated in quicko.

20

Hi @Sushil

All dividend income you’ve received needs to be declared, regardless of whether TDS is deducted or not. You should report the dividend income under the category “Income From Other Sources” (IFOS) in your ITR.

Additionally, if any TDS/TCS is deducted or collected from your dividend income, you should include it as part of your tax credits.

Note: You need to report all your dividend income, even if the amount is less than INR 5000.

Here’s how you can add Income From Other Sources on Quicko.

Hope it helps.