Dividend taxes in India have changed a lot recently. A dividend distribution tax is a cost added to profits that Indian companies give to their shareholders or investors. The tax is based on the rules in the income tax law before the company gives out profits as dividends.
In this blog, we explore whether dividend income is taxable or not, what the tax on dividend income is like, and what the rates for dividend income are.
Dividends are payments that companies make to their shareholders from profits or retained earnings. Companies have the choice of using their profits to reinvest in the company or distributing a part of it to their shareholders as dividends.
Dividends are usually paid in cash, but they can also come in the form of additional stock shares or other assets.
To understand the tax on dividend income, first, let's understand the two broad types of dividends:
A final dividend is the last payment made by a company for a financial term. It's typically paid at the end of the company's fiscal year and is based on the company's profits, cash flow, retained earnings, and dividend practices.
Companies may declare and pay interim dividends during a financial year, before finalising their accounts and when they have enough earnings or extra cash to distribute to shareholders before the end of the fiscal year.
Starting Assessment Year 2021-22, domestic corporations no longer need to pay dividend distribution tax on declared, distributed, or paid dividends. This is a significant change from the previous requirement of paying the tax on all dividends. The new legislation relieves companies of this specific tax obligation and modifies the tax law accordingly.
This table shows dividend tax rates based on the assessee and distribution method.
The company or the mutual fund house that pays your dividends is responsible for deducting TDS on the dividend amount before it is paid out.
TDS is deducted at the rate of 10% for dividend income above ₹5,000. For example, if you earn ₹10,000 in dividends, your net income after TDS deduction will be ₹9,000.
For any dividend income paid out, TDS will be deducted at the rate of 20%. This is also subject to the provisions of the relevant DTAA.
Here are some important updates about the TCS for the financial year 2023-24:
There have been plenty of changes in the tax on dividend income in India. Now, local companies don't need to pay tax on their dividends. But everyone still has to pay tax on their dividend income. If you make less than ₹5,000 in dividends for the year 2021-2022, you don't have to pay tax. It's important to know the latest rules and rates for dividend taxes if you want to invest smartly. You should also learn about the different types of dividends and how much tax you have to pay on them. The company or fund that pays you the dividends will take out some tax, called TDS, before you get your money.
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Yes, all dividend income you receive in India is subject to taxation. You will need to pay tax on your dividend income according to the income tax rates that apply to you.
For the financial year 2021-2022, you can receive up to ₹5,000 in dividend income in India without being taxed. Any dividend income you receive beyond this limit will be taxed according to the applicable tax rates and regulations.
Yes, all the dividend income you receive in India is taxable, including the dividends you receive from mutual fund investments and direct equity investments.
Individuals and Hindu Undivided Families (HUFs) are exempt from paying taxes on dividends up to a certain limit in India. For the financial year 2021-2022, the exemption limit for dividend income in India is ₹5,000.
