Dividends Earned More Than Rs 5,000 In A Stock? Know How Much Taxes You Have To Pay

Dividends are some of the key benefits traders receive on holding equity shares. Usually, a listed company will distribute dividends to their shareholders from the profits of a respective financial year. It needs to be noted that not every company pays dividend and it varies from the business module and earnings of a company. However these dividends that investors earn are taxable. More precisely if your dividend gain is more than Rs 5,000 crore in an equity share then you're liable to pay a 10% tax rate. But if you do not have a valid PAN card, the tax rate goes higher.

Before April 1, 2020, it was the company that distributed dividend was liable to pay a Dividend Distribution Tax (DDT) under section 115-O, and investors were free from such obligations. But the Finance Act 2020, abolished the DDT and move to the classical system of taxation wherein dividends are taxed in the hands of the investors.

Thus, as per Income Tax guidelines, if the dividend is distributed on or after 01-04-2020 the domestic companies shall not be liable to pay DDT and, consequently, shareholders shall be liable to pay tax on such dividend income. As dividends would now be taxable in the hands of the shareholder, various provisions of the Act have been revived such as the allowability of expenses from dividend income, deductibility of tax from dividend income, treatment of inter-corporate dividends, etc.

It needs to be noted that dividend income is taxable under the head 'Income from other sources' irrespective of the fact that the person held securities either as a trader or as an investor.

Under section 194, since April 4, 2020, an Indian company will be deducting tax at the rate of 10% from dividends distributed to the resident shareholders if the aggregate amount of dividends
distributed or paid during the financial year to a shareholder exceeds Rs 5,000. However, insurance firms like LIC India and General Insurance Corporation of India (GIC) or any other insurer are exempted from DDT on any shares owned by them.

However, if the shareholders have not registered a valid Permanent Account Number (PAN), the tax deducted will be 20% of the dividend income.

The TDS on dividend income is also different for investors who are non-residents or a foreign company. Under section 195, where the dividend is distributed to a non-resident shareholder, the taxable rate is 20%.