Starting 1 April 2020, dividend income earned on shares of an Indian company or from a mutual fund scheme is taxable in the hands of the receiver based on the tax rate applicable to their total income. The dividend earned will be part of their total income earned for the financial year 2020-21 and tax as per their respective tax slabs.
Therefore, if your dividend income is within exempted limits, you will need to submit Form 15G or Form 15H to the company or mutual fund you invest in to avoid tax.
Changes in dividend taxation
- In the Union Budget 2020 Dividend Distribution Tax (DDT) was removed.
- Dividend income will be taxed in the hands of the investor of shares of a company of a mutual fund unit.
- TDS (Tax Deducted at Source) will be levied at 10 percent on dividend income paid by a company or mutual fund to its shareholder if the amount exceeds Rs 5,000 in a financial year.
- The rate of TDS on dividend income to non-residents (including companies other than domestic companies) is 20 percent.
- Maximum surcharge on dividend income is limited to 15 percent.
Who can submit form 15G/15H?
Form 15G or 15H is generally submitted to a bank or financial institution you earn interest income from, at the start of a financial year, to avoid paying TDS (tax deducted at source) on that income.
If you are a resident of India and your estimated total income for the financial year 2020-21 is not taxable, you can also submit these forms to a company or a mutual fund house (whichever is applicable) to avoid TDS on your dividend income.
- The new tax regime does not allow you to reduce your taxable income. Taxable income = total income for the year-(deduction + exemptions claimed).
- If you opt for the old tax regime, a tax rebate of a maximum up to Rs 12,500 under section 87A can be availed if taxable income does not exceed Rs 5 lakh in the financial year.
- Your dividend income for the whole financial year cannot exceed the maximum exempted limit (more on this below).
Rules for form 15G and Form 15H are different
- This form is for those who are less than 60 years old and an Indian resident.
- You are required to declare your total income in the form. The total income mentioned in the form is the net taxable income on which the taxpayer's estimated total tax payable has to be nil or zero to be able to avoid TDS.
- Net taxable income is the figure that you get after making all the deductions and claims on gross total income.
- Since FY2019-20, there is no tax payable if your taxable income does not exceed Rs 5 lakh. This means that if you are going to stick to the old tax regime and reduce your taxable income to below zero, you can submit form 15G to a company and mutual fund house to avoid TDS on dividend income.
- The total dividend income for FY 2020-21 cannot exceed the maximum exemption limit of Rs 2.5 lakh to be eligible to submit form 15g.
- A senior or super senior citizen, who is a resident of India, can submit form 15H to a company and/or mutual fund house if they are a resident and they do not have any tax liability on their total income for the financial year.
- They can submit this form to avoid TDS even if their dividend income exceeds the maximum exemption limit.
- The basic exemption limit for senior citizens (60 to 79 year olds) is Rs 3 lakh and for super senior citizens, it is Rs 5 lakh.
- For the financial year 2020-21, the above-mentioned exemption limits will not apply to senior and super senior citizens if they opt for the new tax regime. However, for the purpose of submitting Form 15H, the basic exemption limit can be ignored.