Latest dividend taxation ie TDS in the hands of investors.

lvgandhi

Well-Known Member
#1
I got a mail from Sundaram mutual fund as below.
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Dear Investor,You may be aware that the Finance Act 2020 has removed the Dividend Distribution Tax (DDT) at the mutual fund level, and tax dividends in the hands of investors effective April 1, 2020.Consequently, we are obligated to deduct tax at source on dividends to investors, subject to the aggregate dividend exceeding ₹5000 at the PAN level for the financial year.However, on account of practical difficulties involved due to unique nature of mutual fund investments and different schemes involved, we shall deduct TDS from each dividend declared i.e. even without reaching INR 5,000 threshold. In case the total TDS exceeds the actual tax liability of any investor, he/she can claim a refund while filing income-tax return.Tax will be deducted at 10% for resident investors. In the absence of a valid PAN, tax will be deducted at 20%. For NRIs, tax will be deducted at 20%. The rates are subject to applicable surcharge and cess, if any.As this may affect the post-tax cash flows that you may receive from any dividend payouts, you may want to, in consultation with your advisor, switch into the Growth option. Further, you may also want to evaluate Systematic Withdrawal Plans (SWP) - which may be a more tax-efficient method to derive regular cash flows from your investment based on your current tax bracket.
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Even those whose taxable income is less than minimum, deduction of Tax ie TDS is it legal. Is there no provision like form 15G or form 15H with which it can be avoided.
 
#2
Under Budget 2020, DDT i.e. Dividend Distribution Tax was abolished. As a result, dividend income which was earlier exempt now became a taxable income. Since dividend is now taxable, TDS is also applicable. Under Budget 2020, TDS on Dividend was also introduced.
  1. Sec 194 - Company paying dividend on equity shares should deduct TDS at 10% if amount exceeds INR 5,000
  2. Sec 194K - AMC paying dividend on equity mutual funds should deduct TDS at 10% if amount exceeds INR 5,000
Due to COVID-19, the TDS Rates have been reduced from 10% to 7.5% for FY 2020-21.

As per the Income Tax Act, TDS should be deducted only if the dividend exceeds INR 5,000. However, deducting TDS even if the dividend is less than INR 5,000 is not against the Income Tax Act.

If you want the AMC to deduct TDS at lower rate or nil rate, you can submit Form 15G or Form 15H by following the prescribed conditions.

Further, you must report dividend income as a taxable income in the Income Tax Return. If any TDS has been deducted, you can claim credit of the same by reducing it from the total tax liability. If the TDS Credit is more than the tax liability, you can claim a refund of the excess TDS deducted.

I had used Quicko to file my Income Tax Return last year. They have great services and an easy to use DIY product to file ITR.
 

lvgandhi

Well-Known Member
#3
Under Budget 2020, DDT i.e. Dividend Distribution Tax was abolished. As a result, dividend income which was earlier exempt now became a taxable income. Since dividend is now taxable, TDS is also applicable. Under Budget 2020, TDS on Dividend was also introduced.
  1. Sec 194 - Company paying dividend on equity shares should deduct TDS at 10% if amount exceeds INR 5,000
  2. Sec 194K - AMC paying dividend on equity mutual funds should deduct TDS at 10% if amount exceeds INR 5,000
Due to COVID-19, the TDS Rates have been reduced from 10% to 7.5% for FY 2020-21.

As per the Income Tax Act, TDS should be deducted only if the dividend exceeds INR 5,000. However, deducting TDS even if the dividend is less than INR 5,000 is not against the Income Tax Act.

If you want the AMC to deduct TDS at lower rate or nil rate, you can submit Form 15G or Form 15H by following the prescribed conditions.

Further, you must report dividend income as a taxable income in the Income Tax Return. If any TDS has been deducted, you can claim credit of the same by reducing it from the total tax liability. If the TDS Credit is more than the tax liability, you can claim a refund of the excess TDS deducted.

I had used Quicko to file my Income Tax Return last year. They have great services and an easy to use DIY product to file ITR.
Thanks.
 

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