Dividend Income Taxability From AY 21-22 Onwards

Varsha Nayyar | Last updated: 13 October 2021

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Quick Summary

From Assessment Year 2021-22 onwards, dividend income received by shareholders from domestic companies is taxable in their hands, shifting the tax burden from the company. The entire dividend amount is subject to tax, with no threshold limit applicable. Depending on whether shares are held for trading or investment, dividend income is taxed under 'Profits and Gains from Business or Profession' (PGBP) or 'Income from Other Sources' (IFOS), respectively. Companies are required to deduct Tax Deducted at Source (TDS) on dividend payments.

10 MOST IMPORTANT POINTS TO KNOW ABOUT DIVIDEND INCOME 1. Till Assessment Year 2020-21, the dividend income from a domestic company was exempted in the hands of shareholders under section 10(34) of the Income Tax Act and the company was liable to pay Dividend Distribution Tax (DDT) under section

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FAQ :

Dividend income became taxable in the hands of shareholders from Assessment Year 2021-22 onwards, following an amendment by the Finance Act, 2020.

No, the entire amount of dividend income is taxable in the hands of shareholders, and the previous threshold limit of Rs. 10 Lakhs under section 115BBDA is no longer applicable.

If shares are held for trading purposes, dividend income is taxed under 'Profits and Gains from Business or Profession' (PGBP). If shares are held for investment purposes, it is taxed under 'Income from Other Sources' (IFOS).

Final and deemed dividends are taxable in the year they are declared, distributed, or paid, whichever is earliest. Interim dividends are chargeable to tax in the year they are received by the shareholder.

If taxed under PGBP, all expenditures incurred to earn the dividend are deductible. If taxed under IFOS, only interest expenditure incurred to earn the dividend is deductible, capped at 20% of the dividend income.

For resident shareholders, TDS is generally 10% if the dividend exceeds Rs. 5,000, but mandatory for other residents regardless of amount. For non-residents, it's 20% plus surcharge and cess, unless a lower tax treaty rate applies. Higher rates apply if PAN is not available or for non-filers.