Taxation on Dividend Income w.e.f 1st April 2021

The dividends received from your equity or mutual fund investments were tax-exempt until 31 March 2020 (FY 2019-20). The exemption was because the company or mutual fund paying the dividend was required to pay a dividend distribution tax. Budget 2020 changes the method of taxation by imposing the liability to pay tax on the shareholders instead of the company.
The dividends distributed by companies and mutual funds on or after 1 April 2020 are taxable income of the investor. A deduction is allowed for interest expense incurred against the dividend. The deduction should not exceed 20% of the dividend income received. However, you cannot claim a deduction for any other expenditure incurred for earning the dividend income.
The Budget 2020 also imposes a TDS on dividend income distribution by companies or mutual funds. A TDS of 10% applies to the dividend income distribution per investor. However, no TDS is applicable if the dividend receipt from a company or mutual fund does not exceed Rs 5,000 annually. For the FY 2020-21, the rate of TDS stands reduced to 7.5% for dividends paid till 31 March 2021.

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