The taxability of dividends with effect from the financial year 2020-21 is shifted in the hands of the investors. The investors are liable to pay tax on the dividend income received after 1st April 2020. The domestic companies are liable to deduct tax at source (TDS) at 10% if the aggregate amount of dividend distributed to the resident shareholders exceeds Rs.5,000 in a financial year.
Previously, the companies would distribute the dividends after deducting the dividend distribution tax (DDT), and hence the dividend income received was exempt in the hands of the investors. Those who received dividends exceeding Rs.10 lakh were taxed at 10%. However, now both the provisions are abolished, and investors are now liable to pay tax on dividend income.
The dividend income earned by the person shall be taxable under the head “Income from Other Sources” under section 56(2)(i). In the new ITR forms notified by the government, the schedule OS is amended to include the details of the dividend income earned by the taxpayers during the year.
The taxpayers are now required to provide a quarter-wise breakup of dividend income received in a financial year. The breakup can be given for the periods 1st April 2020 to 15th June 2020, 16th June 2020 to 15th September 2020, 16th September 2020 to 15th December 2020, 16th December 2020 to 15th March 2021, and 16th March 2021 to 31st March 2021. Such quarterly dividend receipt information will help compute the interest for default in payment of advance tax liability, i.e. leviable under section 234C.
You can also claim TDS credit in your return of income if the company has deducted tax while distributing dividend. At present, the income tax department collects relevant information from third parties by the statement of financial transactions or reportable accounts related to transactions of the taxpayers. So, the department is making it easier for the taxpayers by pre-filling the details of dividend income in the income tax return. You can per-fill the ITR by either filing the ITR online or by downloading the XML.
However, it is advisable to crosscheck the pre-filled information before submitting the income tax return.
For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in
I’m a chartered accountant and a functional CA writer by profession. Reading and travelling in free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.
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