From AY 2020-21 any dividend distributed by a company to its shareholders shall attract tax in the hands of the investors and companies will not be liable to pay DDT or dividend distribution tax. Also, other provisions of the Act have been revived including allowability of expenses from dividend income, deductibility of tax from dividend income, treatment of inter-corporate dividend, etc.
Taxation of dividend in the hands of shareholders
From Assessment year 2020-21, the section exempting such income from taxation implication i.e Section 10(34) has been withdrawn. So, dividend income from FY 2019-20 shall now be taxable in the hands of the shareholders. Also, with it the earlier Section 115BBDA that provided for taxability of dividend income over Rs. 1o lakh is of no relevance now as the entire dividend income is taxable for shareholder now.
Rate of taxation
The rate as well as how the dividend income shall be taxed shall depend on a number of factors including residential status, particular income head. If the shareholder is non-resident then DTAA or double taxation avoidance agreement (DTAA) and Multilateral Instrument (MLI) shall also be considered.
Taxation rate also depend on the dividend income amount as well as other factors
1. There shall be no TDS for dividend income up to Rs. 5000 for resident shareholders
2. No TDS where form 15G or 15H is provided together with self attested copy of PAN
3. For other cases, TDS at the rate of 7.5% shall apply where PAN is available.
4. For cases, where PAN is not available in case of resident shareholder, TDS at the rate of 20% shall apply.
5. In the case of NRI shareholders, 20% together with cess and surcharge is withheld. However, tax will evaluated based on the documents furnished to take benefit as part of DTAA.