From FY20-21, the government has made dividend distributed by a company taxable in the hands of the investors. Prior to that, companies used to deduct dividend distribution tax (DDT) before declaring dividend to investors. Therefore, dividend received was tax-free in the hands of the investors, while those who received dividends over Rs10 lakh were taxed at 10%.
Along with the rules, reporting of the dividend in the income tax return (ITR) has also changed. Earlier the dividend was to be shown under 'Exempted Income' whereas now it should be shown under 'Income from other sources'.
Quarterly disclosure
“The quarterly breakup of dividend income is to be reported in the ITR form i.e. dividend earned up to 15th June 2020, from 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," said Tarun Kumar, a Delhi-based chartered accountant.
This quarterly reporting is mandatory to avail relaxation of advance tax penalties on dividend income. Currently, exemption from interest penalty under Section 234(C) for non-payment of advance tax is provided in the case of dividend income. The government has provided relaxation on penal interest on payment of advance tax as it is not possible to predict dividend income. Now, investors are liable to pay advance tax in the quarter in which the dividend is received.
Claim TDS
The company is required to deduct tax deducted at source (TDS) at the rate of 10% in cases where the dividend paid or payable for the financial year is more than ₹5,000. “The taxpayers can claim the credit of such TDS in their return of income," said Kumar.
It is expected that dividend income will be provided pre-filled to tax filers as the tax department has made it mandatory for companies to declare the information of the dividend paid to the department.
In case you get pre-filled data in your ITR, you should check the information thoroughly.
