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The income tax law of taxing dividends came into effect from April 1, 2020 (FY 2020-21). Earlier, the dividends were tax-free in the hands of investors. However, now dividends received from equity shares or any mutual fund schemes (equity or non-equity) are taxable in the hands of an investor. TDS on dividend income was introduced as well. Under the income tax laws, tax is deducted on the dividend income if the total dividend received during a financial year exceeds Rs 5,000. The TDS rate for dividend income is 10%. If PAN is not available with the institution at the time of making dividend payment, then TDS will be deducted at 20%.

TDS on Dividend Income

To avoid TDS on dividend income, individuals can submit Form 15G or Form 15H (as applicable) to the financial institution concerned. An individual can submit Form 15G if his/her age is below 60 years and total dividend income from all equity shares and mutual fund schemes is less than the basic exemption limit, and estimated tax liability for a particular financial year is nil. Similarly, Form 15H is submitted by senior citizens aged 60 years and above, whose estimated tax payable on total income for the relevant financial year is nil. Only resident individuals can submit Form 15G/Form 15H to avoid TDS. NRIs are not allowed to submit the forms.

Basic exemption limit for FY 2023-24

Here is the basic exemption limit under the old and new tax regimes for FY 2023-24:

Basic Exemption limit under new tax regime Age of individual in a fin year Basic exemption limit under old tax regime
3 lacs Below 60 years 2.5 lacs
60-80 years 3 lacs
Above 80 years 5 lacs

HUF (Hindu Undivided Family) cannot submit Form 15G/15H as these forms can be submitted only by resident individuals or senior citizens. HUF is not an individual, but a separate legal entity for the purpose of income tax. Hence, the tax treatment and rules for an HUF are different from those for an individual.

In conclusion, avoiding TDS on dividend income can be a crucial aspect of maximizing your returns on investments. By considering various strategies such as investing in tax-efficient instruments, choosing the right dividend payout option, and keeping track of your income tax liabilities, you can minimize the impact of TDS on your dividend income. Additionally, seeking professional advice from a tax expert or financial advisor can also help you optimize your investments and minimize the tax burden on your dividend income. Ultimately, taking proactive steps to avoid TDS can help you achieve your financial goals and maximize your returns.

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Chartered Accountant with 2 decades of industrial experience worked with Publishing, plastics and chemicals industry, Automotive industry. Currently founder and managing partner at RRL Global Services. View Full Profile

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