From this financial year i.e. beginning April 1, 2020, dividend income is taxable in the hands of investors and so investors in mutual funds also have been provided the option to avoid TDS by submitting the applicable form. And while investors in fixed income instruments such as FDs are well aware of 15G and 15H forms that help avoid TDS in case the overall tax liability is deemed to be nil, these forms will now come in handy for MF investors as well.
Till March 31, 2020, mutual funds collected DDT or dividend distribution tax on mutual funds and dividends were tax free for investors. Nonetheless, the Finance Act 2020 did away with the DDT and made dividend taxable in the hands of investors at their applicable slab rates and also notified TDS rules.
TDS liability on dividends:
In case the dividend income exceeds Rs. 5000, TDS at the rate of 10% shall be applicable. But amid Covid 19 outbreak, FM Nirmala Sitharaman extended relief on this and brought down TDS implication on dividend income to 7.5 percent in May.
Also, for your information, TDS liability arises for all dividend options including dividend reinvestment, dividend payout and even dividend transfer plans. And hence all equity or non-equity schemes announcing dividends shall be subject to TDS.
How TDS can be avoided?
In case your tax liability for the financial year after taking into account all income streams is deemed to be nil, you can avoid TDS liability on dividend income by submitting form 15G in case you are a resident Indian under 60 years of age. And for individuals aged above 60, you need to submit form 15H. For NRIs, this option is not available.
Where and How To Submit 15G, 15H for avoiding TDS on dividend income?
Similar to fixed deposits where you need to fill and submit these forms afresh every year, you can submit 15G and 15H through both offline and online means for avoiding TDS on dividend income. For the online process, you can download the form from your mutual fund's website, or RTA's site and submit it electronically by specifying the details clearly and validating the same via OTP.
Alternatively you can get the forms from the branch office of your mutual fund or RTA and submit the signed forms.