Dividend Income

Dividend is a part of the profit which the company pays to its shareholders. If a persons holds stocks through mutual funds or Exchange traded funds, then dividend is paid by the company to the fund and then it is passed on to the unit holders.

Taxation of Dividend Income

For Resident Taxpayers

Dividend earned by the Resident Taxpayer is taxable at slab rate applicable to the taxpayer. However, if Dividend is earned from a foreign company, Double Taxation benefit is provided to the taxpayer by filing of Form 67A.

Treatment of Dividend Income

Trading Income

If the holder of security is a trader of securities, then any dividend received will be taxable under the head,"Income from Business or Profession".

Investing

If the security on which dividend is received is held for investing purposes, then the dividend received from these securities will be taxed under the head,"Income from Other Sources".

TDS deduction on Dividend Income

Companies are allowed to impose TDS on the dividends distribution by companies and mutual funds.

TDS at the rate of 10% is charged on dividend by the company if the dividend amount exceeds Rs. 5000 from a company or mutal fund. The TDS deducted will be available as credit to the taxpayer while filing ITR.

 TDS at the rate of 20% is chargeable if the recipent is a non resident person subject to DTAA.

Expenses From Dividend Income

Case I: Dividend Income is a Business Income

The tax payer can claim taxdeduction for all expenses relaed to the dividend income such as collection fees, interest on loan, etc.

CaseII: Dividend Income is treated as Income From Other Sources

The taxpayer can claim deduction of only the interest expenses incurred for incurring the dividend upto a maximum of 20% of the total dividend earned.

Form 15G/Form 15H

Form 15G can be provided by a resident individual to the company declaring the dividend if his projected annual total income is below the maximum exemption limit.
Form 15H can be provided by an elderly citizen to the company declaring the dividend when they have no expected annual tax liability.