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:
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Announcement date: The date on which the company management announces the dividend.
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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.
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Record date: This is when the company checks its records to identify the eligible shareholders.
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Payment date: The day on which the dividends are issued and the cash lands in your bank account.
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.
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.
Here’s a video for you!