Poorani, who is a home maker has been investing in dividend earning shares for the past few years. She did not have any other source of income other than the dividend income, and hence there was no requirement for an Income Tax return to be filed for all these years. Poorani has been getting correspondences regarding TDS on dividend from the Companies in which she had invested. Should she file ITR for FY 2020-21? Can she claim any deduction while declaring the dividend income?
WHAT CHANGED TAXABILITY OF DIVIDEND IN BUDGET 2019?
Till March 31, 2020, a DDT (Dividend distribution tax) was levied at 15% (plus surcharge & cess) on dividend from equity shares. In February 2019, Finance Minister Smt. Niramala Sitaraman abolished DDT in Budget 2019.
Section 10(34) which provided for exemption of dividend in the hands of the shareholder was withdrawn and hence dividend received from FY 2020-21 shall be taxable in the hands of the shareholder. Consequently, Section 115BBDA which provides for taxability of dividend in excess of Rs. 10 lakh has no relevance as the entire amount of dividend shall be taxable in the hands of the shareholder.
Hence, taxability of dividend shall now be based on many factors like “residential status” of the shareholder, “head of income” under which dividend income may be declared etc. It would help to know that based on the head of income under which dividend is offered for tax, one can claim certain set of expenses up to specific limits.
TDS ON DIVIDEND
Domestic companies declaring dividend on or after 1-04-2020 is liable to deduct TDS u/s 194 at 7.5% (for resident shareholder), if the aggregate amount of dividend paid in a financial year exceeds Rs. 5,000 in a financial year .
If an assessee’s taxable income is below the basic exemption limit applicable, required documents can be submitted to the Company requesting not to deduct TDS.
If Poorani’s income is above the basic exemption limit, she is required to file her ITR as per law. Even otherwise, if she files her ITR on time, she will be able to claim any excess tax deducted as refund.
One should keep in mind that all TDS deducted will appear in Form 26AS of the assessee. All these factors requires consideration while planning and remitting advance taxes to avoid interest u/s 234B/C.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
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