generate-an-image-based-on-the-topic--epf-withdraw.jpg

EPF Withdrawal Rules 2025

generate-an-image-on-the-topic--portfolio-risk--us.jpg

Portfolio Risk: Definition, Types, Formula, & Management

medium_image.webp

small_image.webp

thumbnail_image.webp

image.webp

12 Best Investment Options for Senior Citizens

If you're earning passive income through corporate dividends, make sure you read all about the taxes you will incur on them.

Tax on Corporate Dividends: Which Ones are Mandatory?

Home Page

Guides

Investments

"Tax on Corporate Dividends: Which Ones are Mandatory?"

Shefaali Bopana

Investments are easy to crack; Start your wealth journey here

<p>
    A dividend is a distribution of profits by a corporation to its shareholders. When a corporation, or company, earns a profit it can disburse a percentage of the profit as a dividend to shareholders.
   </p><p>
    Several Indian corporations pay out dividends to their shareholders every year. Here's a list of all the Indian companies that have been paying the
    <a href="https://fi.money/blog/posts/list-of-all-companies-in-india-which-give-highest-amount-of-dividend-consistently">
     highest dividends consistently over the last 10 years.
    </a>
   </p><h2>
    Source of Dividend
   </h2><p>
    A dividend could come from profit across many sources such as:
   </p><ul role="list">
    <li>
     Investment in a domestic company
    </li>
    <li>
     Investment in a foreign company
    </li>
    <li>
     Equity mutual funds
    </li>
    <li>
     Debt mutual funds
    </li>
   </ul><h2>
    Corporate Dividend Tax
   </h2><p>
    The tax you pay on dividends depends on whether you are a trader or an investor. This means: that if you're a stock trader, you will be taxed on your corporate dividends as part of your profession. If you're not a trader, which means you're either a student or have a regular job, then your corporate dividends are taxed as income from 'other sources'.
   </p><h2>
    Distribution Tax on Dividends
   </h2><p>
    Dividends declared by companies were subject to dividend distribution tax until 30th March 2020. But with effect from April 1, 2020, dividend payout tax has been removed, and taxable in the shareholders' assessment. In other words, it's now taxable on your gains.
   </p><h2>
    Streamlining Corporate Dividend Tax
   </h2><p>
    You didn’t have to pay any tax on a dividend earned from a company based in India till FY '20-21. However, in such cases, the domestic company is liable to pay a Dividend Distribution Tax (DDT) under section 115-O.
   </p><p>
    Further, the Finance Act’ 20 abolished the DDT and taxed dividends at the investor level, irrespective of the amount received at applicable income tax slab rates.
   </p><h2>
    Tax Rates On Dividend Income
   </h2><p>
    Dividend tax rates vary based on the type of assessee getting the dividend and the method used to distribute it. The table below can help you understand this better
   </p>

<p>
    <em>
     Source
    </em>
    :
    <a href="https://tax2win.in/guide/income-tax-on-dividend">
     https://tax2win.in/guide/income-tax-on-dividend
    </a>
   </p><h2>
    To Remember
   </h2><p>
    Final dividends are taxable the very year in which they are declared, dispersed, or handed over by the corporation, whichever comes first.
   </p><p>
    Interim dividends, on the other hand, are taxable when the amount of the dividend is categorically dispersed by the corporation upon receipt of claims.
   </p><h2>
    TDS on Dividend Income
   </h2><p>
    Since 1st April ’20, TDS was introduced to dividends. A base tax of 10% would be knocked off from the dividend if it exceeds ₹5,000 during that financial year.
   </p><p>
    However, no tax is cut back from any dividend paid or due to the Life Insurance Corporation of India (LIC), the General Insurance Corporation of India (GIC), or any other insurer if they own shares or have any rewarding interests. When a dividend is paid to a non-resident or a foreign corporation, however, the tax is withheld in line with the relevant DTAA (Double Taxation Avoidance Agreements) under Section 195.
   </p><h2>
    Double Taxation Relief
   </h2><p>
    A lot of Indian investors also have portfolios of foreign stocks by investing directly in the markets of foreign countries. As a result, a disbursement from a foreign company is taxable in India; double taxation would occur if tax is being levied at the country of origin as well. To avoid this double taxation, India has an agreement with several countries where relief can be claimed according to DTAAs, as well as under Section 91 of the Income Tax Act.
   </p><h2>
    More about Section 91 of the IT Act
   </h2><p>
    As mentioned above, you can claim a tax relief for dividend income earned from another country, if India and that other country share a DTAA or Double Taxation Avoidance Agreements. If there's no DTAA between India and the other country, then the relief can be claimed from the country of residence, which in this case could be India, if you're living here.
   </p><h2>
    Inter-corporate Dividend
   </h2><p>
    The Government has added a new section 80M to the IT Act, which came into place in 2020-21, to prevent a major impact whenever a domestic firm gets a dividend from another domestic company.
   </p><h3>
    1. Corporates earning dividends from a domestic company
   </h3><p>
    Section 80M states that inter-corporate dividends shall be subtracted from the total income of the company, if the dividend is further distributed to shareholders one month before the due date of filing of return.
    <strong>
     ‍
    </strong>
   </p><h3>
    2. Corporates earning dividends from a foreign company
   </h3><p>
    A dividend received by a domestic company (having 26% or more equity shareholding) in a foreign company - is taxable at a rate of 15% plus Surcharge and Health and Education Cess under Section 115BBD. A domestic company having less than 26% equity shareholding is taxable at the normal tax rate.
   </p><p>
    How a domestic firm receives a dividend from a foreign corporation and distributes it to its shareholders, however, is still not clear.
   </p><h2>
    Conclusion
   </h2><p>
    In conclusion, dividends play a significant role in corporate finance, providing a means for companies to distribute profits to their shareholders. Indian corporations have a history of paying dividends consistently, and shareholders can benefit from this income stream. The tax treatment of dividends depends on whether one is a trader or an investor, with different tax rates and regulations applying to each category. Recent changes in tax laws have eliminated dividend distribution tax, shifting the tax burden to individual shareholders. Double taxation relief measures and inter-corporate dividend provisions aim to address taxation challenges in the context of foreign investments and domestic dividend distributions. However, further clarity is required regarding the tax implications of dividends received from foreign corporations by domestic firms.
   </p><h2>
    Rely on FI’s AI-Powered Analyser
   </h2><p>
    Calculating taxes and estimating the amount you will owe is crucial, but it's equally important to analyze the figures in question. This is where Fi can assist you. Fi's AI-powered Analyser can provide insights to help track your expenses: Analyse your spends by Merchants/Brands, Categories &amp; by Time. Fi also provides thoughtful, non-intrusive nudges to help you maximise your savings/investments. Want to know your credit score? The Insights Hub on our Analyser can do that too. This is why over 3 million people trust Fi to get a 360-degree view of their money.
   </p><h2>
    Frequently Asked Questions
   </h2><h3>
    1. What is the frequency of dividend payments?
   </h3><p>
    The frequency with which a dividend can be paid is - daily, weekly, monthly, quarterly, half-yearly, or annual basis, relative to the company or mutual fund house paying the dividend.
   </p><h3>
    2. Is corporate dividends tax deductible?
   </h3><p>
    A dividend from a domestic firm earned during Assessment Year 2020-21 is non-taxable, since it is exempt from tax under section 10(34) of the Act. The domestic corporation, however, is obligated to pay a Dividend Distribution Tax (DDT) under section 115-O in such instances.
   </p><p>
    However, the DDT was repealed by the Finance Act of 2020, reverting to the traditional method of taxes, where profits are taxed in the hands of the investors. In other words, if you're earning income from dividends, then you pay tax on them as part of your income.
   </p><h3>
    3. Are dividends considered income?
   </h3><p>
    Yes, dividends are considered 'income from other sources' under the Income Tax Act.
   </p><h3>
    4. What does DDT mean?
   </h3><p>
    DDT, or Dividend Distribution Tax, is a tax that companies must pay on dividends they pay out. There is no Dividend Distribution Tax (DDT) with effect from FY 2020-21.
   </p>

Tax on Corporate Dividends: Which Ones are Mandatory? | Fi Money

Fi.money