Accrual & Taxability of Dividend Income -Individual Taxation
Dividends declared by domestic companies are exempt from tax in the hands of shareholders. This is so because as per the income tax, an income is taxed only once. The tax on such dividend is already paid by the Company declaring them.
According to the law, every domestic company is liable to pay dividend distribution tax of12.5% in respect of dividend declared, distributed or paid on or after 1.4.2003.
The above detail, as said, applies only to domestic companies. So income from dividend from foreign companies and deemed dividend is liable to tax even in the hands of shareholders. Such dividend is chargeable to tax in the year in which such dividend is paid to the shareholders as per the law.
This means that the shareholder has to pay tax on dividend from foreign companies and on deemed dividend.
The period of chargeability of dividend (either taxable in the hands of companies or shareholder, as applicable) to tax is summarized as below:-
Dividend Type – Year of chargeability in the hands of the assessee
Final Dividend – Previous year in which dividend is declared by the company.
Interim Dividend – Previous year in which dividend is unconditionally made available by the company.
Deemed Dividend – Previous year in which dividend is distributed or paid.
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