𝐔𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐭𝐡𝐞 𝐓𝐚𝐱𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐈𝐧𝐜𝐨𝐦𝐞.

As a taxpayer, it’s crucial to understand the tax implications of dividend income. ➡The Finance Act 2020 brought significant changes in this area, shifting the tax liability from the company distributing dividends to the individual investors. Previously, dividends received from an Indian company were exempt from tax until March 31, 2020, as the company had already paid Dividend Distribution Tax (DDT). 💡However, from April 1, 2020, dividends are taxable in the hands of the investor.

The DDT liability on companies and the 10% tax on dividends exceeding Rs. 10 lakh under Section 115BBDA have been abolished. Additionally, the Finance Act 2020 introduced a Tax Deducted at Source (TDS) on dividend income. Companies and mutual funds must deduct TDS at 10% on dividend payments exceeding Rs. 5,000. 📈As a COVID-19 relief measure, the TDS rate was temporarily reduced to 7.5% until March 31, 2021.

For non-resident individuals, TDS is deducted at 20%, subject to the Double Taxation Avoidance Agreement (DTAA). Investors can claim a deduction for interest expenses incurred against dividend income, up to 20% of the total dividend received. However, no other expenses can be deducted. 💰For those receiving dividends from foreign companies, the income is taxable under “income from other sources” and is subject to the applicable tax rates. Relief from double taxation can be claimed either under the DTAA or Section 91 if no such agreement exists. ✅Understanding these provisions helps in effective tax planning and compliance. Feel free to consult with us for further guidance.