Company Dividend is Taxable from FY 2020-21 but What about Mutual Fund Dividend?



Quick Summary
Since the financial year 2020-21, dividends received from both companies and mutual funds are taxable in the hands of the recipient. This means the previous exemptions under sections 10(34) and 10(35) of the Income Tax Act are no longer applicable. Consequently, the special tax provision for dividends exceeding £10 lakh (Section 115BBDA) is also irrelevant as all dividend income is now subject to tax.

Hope you already know that Dividend received from company is taxable from financial year 2020-21. Hence exemption u/s 10(34) is not applicable from FY 2020-21 as Dividend Distribution Tax u/s 115O. But there are fewer clarifications regarding Mutual Fund Dividend Exemption under section 10(35). Is it still available or not? Let's read and understand with official links:

What is Dividend?

Dividend means the distribution of rewards from a portion of the company's earning and is paid to its shareholders. Dividend is a part of the profit that a company shares with its shareholders. Dividends can be issued as cash payments or as shares of stock or any other kind, though cash dividends are most common.

According to Sec 10(22) of Income Tax Act, Dividend Includes

  • Distribution of accumulated profits to shareholders entailing release of the company's assets;
  • Distribution of debentures or deposit certificates to shareholders out of the accumulated profits of the company and issue of bonus shares to preference shareholders out of accumulated profits;
  • Distribution made to shareholders of the company on its liquidation out of accumulated profits;
  • Distribution to shareholders out of accumulated profits on the reduction of capital by the company ; and
  • Loan or advance made by a closely held company to its shareholder out of accumulated profits.
Mutual Fund Dividends: Taxable from FY 2020-21

Taxation on Dividend received from Indian Companies (Domestic Companies)

From Financial Year 2020-21, Dividend received from companies is taxable in the hand of receiver (shareholder). There is no exemption available u/s 10(34) of I.T. Act.

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Taxation on Dividend received from Mutual Funds

From Financial Year 2020-21, Dividend received from Mutual Funds is also Taxable in the hand of receiver. There is no exemption available u/s 10(35) of I.T. Act.

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Consequently, Sec 115BBDA which provides for Taxability of Dividend in excess of Rs. 10 lakh has no relevance as the entire amount of dividend shall be taxable in the hand of shareholder.

 

FAQ :

Yes, dividends received from companies have been taxable in the hands of the shareholder since the financial year 2020-21.

No, the exemption under section 10(34) of the Income Tax Act is not applicable for dividends received from companies from FY 2020-21 onwards.

Yes, dividends received from mutual funds are also taxable in the hands of the recipient from the financial year 2020-21.

No, there is no exemption available under section 10(35) of the Income Tax Act for dividends received from mutual funds from FY 2020-21 onwards.

Section 115BBDA, which dealt with the taxability of dividends exceeding £10 lakh, is no longer relevant because the entire amount of dividend received from both companies and mutual funds is taxable in the hands of the shareholder from FY 2020-21.




About the Author

Advocate & Tax Consultant

LL.B (Taxation) Blogger at https://soumyalaha.blogspot.in

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