TDS on Dividend Income: No tax if you don’t have taxable income
After the removal of the Dividend Distribution Tax (DDT), dividend income becomes taxable in the hands of investors, and tax deduction at source (TDS) becomes applicable on dividend payout u/s 194 of the Income Tax Act. Section 194 is applicable from 1st April 2020 i.e. FY 2020-21 onwards.
If the investor’s PAN is available, 10% TDS is applicable on dividend income of over Rs 5,000 in a financial year. In the absence of a PAN, the TDS rate would be 20%.
Dividend income and TDS information will now be available on the latest Form 26AS , making it easier to file an Income Tax Return (ITR) and making income suppression more difficult.
However, if an individual’s dividend income is less than Rs 2.5 lakh or overall income, including dividend income, is not taxable, he or she must file a tax return in order to claim back the TDS paid on dividend income as a tax refund.
The good news is that, just as with a bank FD, you can now deposit Form 15G (for individuals under 60 years of age) or Form 15H (for senior citizens) to ensure that no TDS is deducted from your dividend income if your total income for the financial year does not exceed Rs 2.5 lakh.
Individual investors may apply Form 15G or Form 15H to the company directly for dividends on securities.
The relevant form may be deposited either directly to the Asset Management Company (AMC) or to their Registrar and Transfer Agents (RTA) – such as CAMS and KFintech(branch of Karvy). – in the case of the Dividend Payout option on Mutual Fund schemes.
PAN, Name of the Fund House (AMC), Folio Number, Estimated Income from Income Distribution cum Capital Withdrawal Option (IDCW), projected Total Income in the Financial Year, and Year for Declaration are the information to be entered when applying for MF schemes via their RTAs.
If you have Income Distribution cum Capital Withdrawal (IDCW) as part of your salary and your overall income is not taxable, you can apply Form 15G/H as soon as possible. Otherwise, you must file an ITR if you earn a dividend after TDS has been deducted.
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