Taxability of Dividend for Indian from Indian Company

DIVIDEND

When a company earns more money than it spend, the extra money can either be spent on making the company better or it can be given to the people who own stock in the company as a dividend.

Dividends can be issued in various forms, such as cash payment, stocks or any other form.

A company’s dividend is decided by its board of directors and it requires the shareholder’s approval.

However, it is not obligatory for a company to pay dividend.

TAXABILITY IN HANDS OF SHAREHOLDERS

From F.Y 2020-21, section 10(34) has been withdrawn- which exempted dividend income from taxation.

Also, earlier section 115BBDA that provided taxability of dividend over Rs 10 lakhs is of no relevance in hands of shareholders also.

Taxable at normal tax rates (slab rates) as applicable with a 20% deduction allowed only for expenditure related to it.

TDS ON DIVIDENDS OF DOMESTIC COMPANIES

As the financial year comes to an end, a lot of companies will be proposing a final dividend to be approved by the members at the AGM.

As dividends have become taxable and the companies are required to deduct TDS on the same, here is a small summary of the rates at which TDS is to be deducted-

An Indian Company is required to deduct tax at source u/s 194 & 195 in case of residents and non –resident shareholders respectively.

Residents with total dividends in a financial year upto Rs. 5000/- (Under section 194)

For resident, if the total dividend in a financial year upto Rs. 5000/- then no rate of TDS.

Residents with total dividends in a financial year more than Rs. 5,000/- (Under section 194)

For resident, if the amount received by the individual exceeds Rs 5,000 in a financial year then the TDS rate is 10% on the full amount.

Non-Residents (Under section 195)

The rate in force for Non-residents is either 20% further increased by applicable Surcharge and Health & Education Cess Or Rate as per the relevant DTAA

Whichever is lower

However, in order to apply the rate of DTAA, the companies need to obtain certain documents such as TRC, Form 10F, beneficial ownership confirmation etc. from the Non-Resident shareholders.