Dividend received from shares and MF is taxable; Here’s how to reduce your tax outgo from dividend income in your ITR
If you own shares in an Indian company or have units in a mutual fund, and you received dividends in your bank account in the financial year 2023-24 (assessment year 2024-25), you must report this income when filing your income tax return (ITR).This is because dividend income is now taxed as per the slab rate applicable to the individual. If your income puts you in a higher tax bracket, you may have to pay a large amount of tax on the money you receive from investments.
Let us take a look at how to reduce your tax outgo on dividend income and how to report this income when you file your ITR.
How is the TDS threshold determined for dividend income?
As per Neeraj Agarwala, Partner, Nangia & Co LLP, “It is important to note that this threshold of Rs 5,000 is considered for each distributing company separately, not in aggregate for the total dividends received from multiple companies.” So, there is a scope that there will not be any TDS deduction if you receive dividends below Rs 5000 from multiple stocks or mutual funds.
Agarwala explains the concept with an example. “For example, if A receives a dividend of say Rs 2,500 from Company X and Rs 6,000 from Company Y, Company Y will deduct TDS since the threshold of Rs 5,000 is exceeded. In contrast, Company X will not deduct TDS unless it is likely to distribute additional dividends that would cause the total dividend payment to exceed the Rs 5,000 threshold during the financial year,” he says.
How to report dividend income while filing ITR?
Dividend income needs to be reported in Schedule OS (income from other sources) when filing your ITR.
“This schedule is present in all ITR forms applicable to individuals. It is important to ensure that the amount reported in the income tax return is the gross amount, i.e., the total income including any TDS deducted by the company. This ensures that the full dividend income is reported, and the appropriate tax credits are applied,” says Agarwala from Nangia & Co LLP.
Can you reduce your tax liability on dividend income?
As per Agarwala the only way to reduce tax liability on dividend income is to claim interest expenses under section 57.
“Only interest expenses are allowed as a deduction from dividend income. However, this deduction is limited to a maximum of 20% of the dividend income received. For instance, if a person borrowed money to invest in equity shares, then the interest on the borrowed amount will be allowed as a deduction. No other expenses, such as administrative costs, brokerage fees, or any other type of expenditure, are allowed as deductions from dividend income,” says Agarwala.
Published in Economic Times
