Actually, dividend distribution tax (DDT) on dividend income received by companies and mutual funds has been abolished. With the new rule effective from April 1, 2020, you will have to pay tax on the dividend income from mutual funds and domestic companies. Simply put, the dividend you get will add to your total income, on which tax will have to be paid according to the slab.
10 percent tax had to be paid
As per amendment in section 57 of the Income Tax Act-1961, only 20 percent of the total income earned as dividend will be taxed. The purpose of the new rule is to eliminate the burden of DDT on the dividends paid to companies and mutual funds and put them on investors. Earlier, there was no tax on dividend income tax of up to Rs 10 lakh. But, over 10 lakh dividend income was taxed at 10 per cent.
This is how you understand mathematics…
- For individual Indian investors: The government has abolished 10 per cent tax on dividend income above Rs 10 lakh per annum for general investors. Therefore, the tax on dividend for such investors will be calculated according to the slab.
- For Indian companies: For corporate investors, the tax on dividend income will be calculated according to the effective slab, which is in the range of 25.17 per cent to 34.94 per cent. This includes both surcharge and cess.
- For NRIs: Non-resident Indians who have invested in the Indian stock market or mutual funds will have to pay 20% tax on the dividend. However, foreign companies have to pay 5 to 15 per cent of the dividend, depending on which country has India’s tax agreements.
under the new rule, TDS will not be deducted if you earn Rs. 5,000 through dividend. However, TDS will have to be paid at the rate of 10% if the dividend income exceeds Rs 5,000.
The TDS rate for May 14, 2020 to March 31, 2021 has been reduced to 7.5 percent. During this period only 7.5% TDS will be deducted on the dividend received. If the company does not have the details of your PAN, then 20% TDS will be deducted.
There will be double burden of tax on the investors.
This step will incur double burden of tax on the investors. One will have to pay TDS on the dividend and the other will also have to pay tax according to the slab when the dividend is added to their annual earnings. However, TDS will be able to claim. -Atul Garg, Tax Expert
