What is the rate of TDS deduction on dividend income
Tax Deducted at Source (TDS) is a mechanism introduced by the Indian government to collect tax at the source of income. When it comes to dividend income, TDS plays a crucial role in ensuring that taxes are collected efficiently.
What is Dividend Income?
Dividend income refers to the earnings distributed to shareholders from a company’s profits. It is typically paid out on a per-share basis and can be a significant source of income for investors. In India, dividends are taxed at the individual level as part of the taxpayer’s total income.
TDS on Dividend Income
Before April 1, 2020, dividends paid by domestic companies were exempt from TDS up to a certain limit under Section 194 of the Income Tax Act, 1961. However, with the introduction of the Finance Act 2020, the taxation framework for dividend income has undergone a significant change.
Current TDS Rates on Dividend Income
Under the revised rules, the TDS rate on dividend income for resident shareholders is as follows:
- TDS Rate: 10% on dividends exceeding ₹5,000 in a financial year.
Key Points to Note:
- Threshold Limit: TDS is applicable only when the total dividend income exceeds ₹5,000 in a financial year.
- Nature of Recipient: The TDS rates may vary based on the nature of the recipient. For example, different rates apply for resident and non-resident shareholders.
- Non-Residents: For non-resident shareholders, the TDS rate is generally 40%, although the actual rate may vary based on the applicable Double Taxation Avoidance Agreements (DTAA) between India and the shareholder’s country of residence.
TDS Deduction Process
- Deduction by Companies: Companies are responsible for deducting TDS before disbursing dividends to shareholders. They must calculate the TDS on the total dividend amount exceeding ₹5,000.
- Form 26AS: The deducted TDS amount will be reflected in the taxpayer’s Form 26AS, which is an annual tax statement that provides a summary of tax-related information.
Filing Income Tax Returns
Shareholders must report their dividend income while filing their Income Tax Returns (ITR). The TDS amount deduct can be claim as a credit against the total tax liability for the financial year.
FAQs:
What is TDS on dividend income?
TDS (Tax Deducted at Source) on dividend income is a tax withheld by companies before distributing dividends to shareholders, ensuring that tax is collect at the source.
2. What is the current TDS rate on dividend income?
The current TDS rate on dividend income for resident shareholders is 10% on dividends exceeding ₹5,000 in a financial year.
3. Is there a threshold limit for TDS on dividends?
Yes, TDS is applicable only if the total dividend income exceeds ₹5,000 in a financial year.
4. Do non-residents pay the same TDS rate on dividends?
No, non-resident shareholders typically face a TDS rate of 40%, though this may vary base on the applicable Double Taxation Avoidance Agreements (DTAA).
5. Who is responsible for deducting TDS on dividends?
Companies paying dividends are responsible for deducting TDS before disbursing the amounts to shareholders.
6. How is the deduct TDS reflect for taxpayers?
The deducted TDS amount is reflect in the taxpayer’s Form 26AS, which summarizes their tax-related information.
7. Can I claim TDS deduct on dividends?
Yes, you can claim the TDS deducted as a credit against your total tax liability when filing your Income Tax Returns (ITR).
8. Are dividends taxed at the individual level?
Yes, dividend income is taxed at the individual level as part of the taxpayer’s total income.
9. What if my dividend income is less than ₹5,000?
If your total dividend income is less than ₹5,000 in a financial year, no TDS will be deduct.
10. How should I report dividend income in my tax return?
You should report dividend income under the “Income from Other Sources” section when filing your Income Tax Return (ITR).
For more information to Visit https://www.incometax.gov.in
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