TAXATION OF DIVIDEND INCOME RECEIVED on or after 1 April 2020 BY RESIDENTS AND NRIs

Taxation of dividend income received on or after 1 April 2020 (FY 2020-21)

You may receive a dividend from your equity or mutual fund investments. The dividends received were tax-exempt until 31 March 2020 (FY 2019-20). The exemption was because the company or mutual fund paying the dividend was required to pay a dividend distribution tax. Budget 2020 changes the method of taxation by imposing the liability to pay tax on the shareholders instead of the company.

The dividends distributed by companies and mutual funds on or after 1 April 2020 are taxable income of the investor. A deduction is allowed for interest expense incurred against the dividend. The deduction should not exceed 20% of the dividend income received. However, you cannot claim a deduction for any other expenditure incurred for earning the dividend income.

The Budget 2020 also imposes a TDS on dividend income distribution by companies or mutual funds. A TDS of 10% applies to the dividend income distribution per investor. However, no TDS is applicable if the dividend receipt from a company or mutual fund does not exceed Rs 5,000 annually. For the FY 2020-21, the rate of TDS stands reduced to 7.5% for dividends paid till 31 March 2021; as a Covid-19 relief.

TDS applicable to a resident individual shareholder with valid PAN:

Effective April 1, 2020, as per the Income Tax Act,1961, the dividend income is taxable in the hands of shareholders. Accordingly, if any resident individual shareholder is in receipt of dividend exceeding Rs. 5,000 in a fiscal year, entire dividend will be subject to TDS @ 7.5%. The rate of 7.5% is applicable provided the shareholder has updated his/her Permanent Account Number (PAN) with the depository/ Registrar and Transfer Agent (RTA). Otherwise the TDS rate will be 20%.

If the dividend to a resident individual shareholder does not exceed Rs 5,000 in a fiscal year, no TDS is applicable.

If the resident individual shareholder provides declaration in Form 15G/ Form 15H, no TDS is applicable.

TDS applicable to a resident individual shareholder without or invalid PAN:

Higher TDS on dividend declared after April 1, 2020 if you don't submit PAN

If the resident individual shareholder has not updated the PAN or has provided an invalid PAN to the depository/ RTA, then TDS will be made at 20%.

TDS applicable to non-resident shareholders other than FIIs/ FPIs:

For non-resident shareholders, the rate of withholding tax is 20% (plus applicable surcharge and cess) as per Indian Income- tax Act, 1961. However, where a non-resident shareholder is eligible to claim the tax treaty benefit, and the tax rate provided in the respective tax treaty is beneficial to the shareholder, then the rate as per the tax treaty would be applied. In order to avail tax treaty benefits, non-resident shareholders would be required to submit ALL the below documents:

1.Tax Residency Certificate for FY 2020-21, the year in which the dividend is received (to be obtained from the Revenue / Tax authorities of the country of which the shareholder is resident)

2.Form 10F as per the format specified under Income Tax Act, 1961 

3.Copy of PAN Card attested

4.Self-declaration of beneficial ownership and not having a PE in India  

Please note that the Company is not obligated to apply the beneficial DATA rates at the time of tax deduction/withholding on the dividend amount. Application of beneficial DTAA Rate shall depend upon the completeness and satisfactory review by the Company, of the documents submitted by the non- resident shareholder.

If the documents are not provided or are insufficient to apply the beneficial DATA rates, then tax will be deducted at 20% plus applicable surcharge and cess.

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