Being a taxpayer, you may have some doubt about the taxability of dividend income while filing your income tax return. Whether the dividend income is taxable? Let us understand the tax implications on dividend received from the domestic & foreign company.
As per section 10(34) of the Income Tax Act, any dividend received from a domestic company (being an Indian company) is exempt from tax. This reason for exempting the dividend income on the hands of the shareholder is the dividend distribution tax that a has to pay on the distribution of such dividends before paying you.
However, section 115BBDA being inserted in the income tax act by the virtue of the Budget 2016, which created a lot of controversies. This merciless section states that in the case of a resident individual/HUF/Firm, the dividend received from domestic companies shall be chargeable to income tax at the rate of 10% if the aggregate amount of dividend received from a domestic company exceeds Rs 10,00,000 (Rupees 10 lacs) during the financial year. However, the tax shall be chargeable on dividend income to the extent it is in excess of Rs 10 lakhs.
For instance: Mr. Amol received a dividend of Rs 11 lakhs forms various domestic companies during the year. Now, since Mr. Amol dividend income exceeds Rs 10 lakh, he will have to pay tax @10% on dividend income in excess of Rs 10 lakh. Thus, Mr. Amol shall pay tax on Rs. 1,00.000 (11,00,000-10,00,000) @10 % i.e. Rs. 10000.
Dividend Received from Foreign Company
Any dividend received from a foreign company is fully taxable. Dividend received from a foreign company will be treated as income under the head “income from other sources.”
Such dividend will be included in the total income of the assessee and will be charged to income tax at the rates applicable to the assessee. For instance, if the assessee comes in the 20% tax bracket, then such dividend will also be taxable at 20% along with cess.
Tax on Dividend Income at a glance:
|
Source of Dividend Income |
Tax Rate for Individuals/HUFs |
Income Tax Section |
|
Domestic Company |
||
|
-if aggregate dividend income received during the year is less than Rs. 10 lakh |
NIL |
Section 10(34) |
|
-if aggregate dividend income received during the year is more than Rs. 10 lakh |
10% |
Section 115BBDA |
|
Dividend from Foreign Company |
As per the marginal tax rate applicable to the taxpayer |
Section 115BBD |
|
Dividend from Debt Mutual Fund |
NIL |
Section 10 (35) |
|
Dividend from Equity Mutual Fund |
NIL |
Section 10 (35) |
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