Recently I have received some emails from companies that have declared dividends which will be distributed post April 1, 2020. As per my understanding, the dividend received is now taxed in the hands of the recipient so companies should not be deducting any tax. All dividend received will be should be taxed at the tax bracket of the recipient as per my understanding.
However, the emails seem to suggest that if I am a resident of India and am going to receive a total dividend amount of greater than INR 5000 (that’s my understanding) there would be a deduction of 7.5% as tax deducted at source. This is the part I am confused about.
Why is there tax deducted at source in the first place? Also is there any form I am supposed to submit in the case my total dividend from all companies exceeds INR 5000 and I am a resident of India.
Additionally, I would like to understand how this would (if at all ) change for senior citizens?
Under Budget 2020, the government abolished DDT i.e. Dividend Distribution Tax. Thus, dividend became a taxable income and the shareholder should pay tax on it at slab rates.
The Budget also introduced the provision to deduct TDS i.e. Tax Deducted at Source on the dividend by the Company before making payment to the shareholder. TDS @10% (reduced to 7.5% for FY 2019-20) should be deducted if the dividend exceeds INR 5,000.
TDS is not only for dividend income but also for other taxable incomes such as salary, professional fees, interest, commission etc.
You can claim the credit of deducted TDS as taxes already paid when you file your Income Tax Return. If the tax liability is more than TDS credit, you need to pay only differential tax. If tax liability is less than TDS credit, you can claim refund of the excess amount.
If you are resident of India and dividend exceeds INR 5,000, You can provide duly signed Form 15G (applicable to any person other than a Company or a Firm) or Form 15H (applicable to an Individual above the age of 60 years) provided that all the prescribed eligibility conditions are met.