Taxability of Dividend from F.Y 2020-21 for Shareholders-
From F.Y 2020-21, Section 10(34) has been withdrawn-Exempting dividend Income from taxation.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.
Taxation of Dividend in hands of shareholders- Dividend can be taxable under head- Income from other sources or Business Income…It means if shares are held for trading purposes then business income and if shares are held as an investment then taxable as Income from other sources.
Deduction from Dividend Income- Depending upon nature of income- Assessee can claim deductions of all expenditures which have been incurred to earn that dividend income such as interest on loan,collection charges etc in case taxable as business income.
Also Assessee can claim deduction to extent of 20% of total dividend income but deduction related to interest expenditure only. No deduction shall be allowed for any other expenditure.
Now Next question Tax Rate of Dividend- Dividend shall be taxable at normal tax rates as applicable except-
Obligation of Indian Companies- As per new provisions, An Indian Company is required to deduct tax at source u/s 194 & 195 in case of residents and non –resident shareholders respectively. Indian company may be listed company or unlisted company.
Section 194- Rate of TDS is 10 % and Threshold limit is Rs 5000 for dividend paid other than cash only for Resident Individual. Due to outbreak of COVID-19 pandemic rate of TDS REDUCED to 7.5% instead of 10% w.e.f 14.05.2020 and shall be applicable till 31.03.2021.
The threshold limit does not apply in case the shareholder is a HUF, FIRMS, COMPANY, TRUSTS ETC. i.e TDS is required to be deducted on entire dividend amount. Further threshold limit of Rs 5000 apply only when dividend is paid other than cash. Also, if shareholder does not provide PAN to company then rate of TDS shall be increased to 20 %.
Shareholders exempt from TDS- NO TDS is required to be deducted when shareholder is the following insurance companies-
Section 195- In case recipient shareholder is a non-resident shareholder then tax shall be deducted under Section 195.Dividend payment to non –resident shareholders is subject to withholding tax at rate of 20% increased by surcharge and health and education cess of 4%. A lower rate for tax may apply if benefit of the tax treaty /DTAA is available to shareholders.
TDS @ 20% on dividend paid to Foreign Institutional Investors or Foreign Portfolio Investors u/s 196C/196D of the Income tax Act.
Rate of surcharge in case of non –resident individuals/HUF/AOP/BOI-
|Amount of Dividend||Section 195||Section 196C/196D|
|UP TO Rs 50lakhs||Nil||Nil|
|1 crore-2 crore||15%||15%|
|2 Crore-5 crore||15%||25%|
|Above 5 crore||15%||37%|
Rate of surcharge in case of Non resident companies-
|Amt of dividend||Rate of surcharge|
|Up to Rs 1 crore||Nil|
|1 crore-10 crore||2%|
Health & Education cess @4% shall be applicable in all cases.
Important point to remember- TDS shall be deducted at the time of making payment to shareholders and not when dividend is declared.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.