TDS are going to be cut by 7.5% on equity dividends exceeding ₹5,000 for resident Indians from this fiscal year.
Companies have begun sending out emails to shareholders notifying them of this provision and asking them to supply appropriate documents if they're exempt from paying TDS.
Earlier, the dividend distribution tax was levied on dividends from shares at 15%. After the surcharge, the effective rate went up further.
Within the fiscal year 2019-20, it came to twenty.35%. However, Budget 2019 abolished DDT and made dividends taxable within the hands of shareholders. It also imposed a TDS on dividends above ₹5,000 at 7.5%. The change is additionally applicable to dividends on mutual funds which were also earlier subject to DDT.
If your income is a smaller amount than the fundamental exemption threshold of ₹2.5 lakh p.a., you'll submit Form 15G or Form 15H (if you're above 60 years of age) to the corporate to forestall TDS from being deducted. If you're a non-resident Indian (NRI), TDS on dividends are going to be levied at 20%. However, Double Taxation Avoidance Agreements (DTAAs) with some countries provide for lower TDS. to assert this benefit, you'll need to obtain a tax residency certificate (TRC) from your home country and submit it in India.
If your dividend amount is a smaller amount than ₹5,000, TDS won't be deducted on the identical. However, you’ll have to add this income to your total income and pay the applicable tax yourself. Dividend income is taxed at the slab rate. as an example, if your taxable income in an exceedingly year exceeds ₹10 lakh and you get a dividend of ₹3,000, you'll pay tax at 30% (₹900) together with applicable surcharge and cess.
The MF Advantage
some experts have asked investors to think about switching their direct stock portfolios to mutual funds. Equity mutual funds invest in stocks and are, hence, an indirect way of holding stocks. Mutual funds are exempt from tax on dividends and also the dividend gets added to the web asset value (NAV), which benefits the top investor.
MF investors only need to pay capital gains tax once they redeem the units. This can be levied at 15% for holding periods of but one year and 10% for extended holding periods. Gains up to ₹1 lakh per annum are exempt. “Investors typically build these stock portfolios haphazardly, supported something they’ve read or heard from an acquaintance. A professionally managed open-end investment company can do a much better job than such portfolios. The dividend advantage of mutual funds is one more reason why you must be investing through them. If you don’t like paying high expense ratios for mutual funds, go for direct plans," said Suresh Sadagopan, Founder, Ladder 7 Financial Advisories, a Semi-registered adviser.
However, dividends from mutual funds are taxable at the slab rate and hence only investors in growth plans of mutual funds are fully able to capture the vantage mentioned above.