During Budget 2020, Nirmala Sitharaman introduced adding Section 194K to the Finance Act. This provision allows any resident citizen to deduct the amount paid on mutual fund units, up to a certain cap. Any individual responsible for paying an income to a resident in regard to units of a Mutual Fund as defined in Section 10(23D), units from the Administrator, and units from a specified company as per Section 194K. Due to the abolition of the Dividend Distribution Tax (DDT), dividend income becomes taxable in the hands of taxpayers, and tax deduction at source (TDS) becomes effective on dividend payout u/s 194 of the Income Tax Act. As a result, if the investor's PAN is submitted, 10% TDS is effective on dividend income of over Rs 5,000 in a fiscal year.
In the event that the PAN is not submitted, the TDS rate would be 20%. To make filing an Income Tax Return (ITR) simpler, the specifics of dividend income and TDS will now be available on the new format of Form 26AS. That being said, if an individual's dividend income is less than Rs 2.5 lakh or his or her net income, including dividend income, is not taxable, he or she must file a tax return in order to get tax refund for TDS paid on dividend income. If your taxable income is less than Rs 2.5 lakh, but you have paid TDS on dividends, submit Form 15G or Form 15H for individuals over 60 years old to notify the company or the share registrar and transfer agent (RTA) about your tax-free income.
You can also find Form 15G/H on the website of your company or the RTA. Fill in the essential details such as the company's name, whether shares are maintained physically or by a depository participant (DP), your DP ID or Client ID, and folio number. Individual investors should submit Form 15G or Form 15H to the company directly for dividend on their shares. The relevant form may be submitted directly to the Asset Management Company (AMC) or to their Registrar and Transfer Agents (RTA) - such as CAMS and KFintech - in the case of the Dividend Payout option on Mutual Fund schemes. Investors can also submit Form 15G or Form 15H online at the official site of AMCs or RTAs. PAN, name of the AMC, Folio Number, Income Distribution cum Capital Withdrawal (IDCW), year for declaration and so on are the specifics to be specified if applying for MF schemes via their RTAs.
If you have IDCW as part of your income and your overall income is not subject to taxation, you must apply Form 15G/H or else you will be required to file an ITR if you earn a dividend after TDS has been deducted. It is suggested to check your demat account and see if your PAN is linked with it or not. You will be charged a higher TDS of 20% if your PAN is not linked to your demat account. It is also important to note here that the TDS on dividends deducted in a fiscal year is 10%, but the actual income tax would be determined by your tax bracket and other sources of income.