Introduction

A dividend is a payment that is declared by a company’s board of directors & it is to be given out to its shareholders out of the company’s current or retained earnings. The company that offers dividends to their shareholders are most often companies that have progressed beyond the growth rate & no longer benefit sufficiently by reinvesting their profit. So, in that case, they usually choose to pay them out to their shareholders.

Tax on Dividend Income

  • As per section 10(34) of Income Tax Act, the dividend is an exempt income if the company has already paid Dividend Distribution Tax on it under Section 115-O [any dividends from a domestic company other than dividends covered under section 2(22)(e)]. However, as per section 115BBDA, in the case of resident Individual/HUF/Firm, the dividend shall be chargeable to tax at the rate of 10% if the aggregate amount of dividend received during the year exceeds Rs. 10,00,000.
  • Any income in respect of units of a mutual fund is exempt under section 10(35);
  • Income received by a unit holder of UTI (However, income on the transfer of units is not exempt);
  • Income in respect of units of a specific company.

Dividend Distribution Tax

The Dividend received on shares of a domestic company is exempted from tax up to Rs. 10,00,000/-. Because the Dividend Income which is received by the investors was already taxed through Dividend Distribution Tax (DDT). Moreover, any income received with respect to investment in any Mutual Fund is also free of taxes in the hand of investors.

According to the section 115-O of the IT Act, the companies have to pay an extra tax called dividend distribution tax (DDT) from the profits of the company. By enforcing DDT, the government has directly collected the tax.

The dividend distribution tax rates are as follows:

PARTICULARS TAX RATES
Domestic companies 15%+12% surcharge+3%cess = 17.304%
Other mutual funds 25%+10% surcharge+3%cess = 28.325%
Equity mutual funds NIL

The dividend distribution tax is only to be paid by the Indian companies. It is not payable in case of foreign companies.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business ReturnBulk Return or Revised Return Filing.