Tax on Dividend Income

What is Dividend?

If you buy shares of any listed company then you are the shareholder in that company and out of the surplus/ profit and retained earnings share of profit pay out to the shareholder is called Dividend.

The value of dividend is determined on per share basis and approved by Board of directors.

Tax on Dividend Income:

Provision up to F.Y. 2019-20

Any dividend received from a domestic company is exempt from tax in the hands of shareholders under section 10 (34) of Income Tax Act. Tax has to be paid by the domestic company under section 115-O – Dividend Distribution Tax (DDT). As company paying tax on dividend distributed so it was exempt in the hands of shareholders to avoid double taxation.

However, in 2016 new section 115BBDA introduced, and the provision of this section says Dividend Income received from domestic companies @ 10% if aggregated of such dividends exceeds Rs. 10 Lac. In simple words if dividend received from domestic companies is more than 10 lac then dividend income in excess to 10 lac should be taxable in the hands of shareholders @ 10% 

Provision from F.Y. 2020-21

In budget 2020 Finance Minister abolished the Section 115-O – Dividend Distribution Tax (DDT) and Shift the burden of tax on the shareholders by withdrawing the Section 10(34) and accordingly section 115BBDA has no relevance as entire dividend is taxable in the hands of shareholders from 1st April 2020.

From 1st April 2020 Companies deducted TDS @ 10% under section 194 of Income tax Act if dividend payout is more than Rs.5000.