How to avoid TDS on dividend income for FY 2023-24 & AY 2024-25?

Suresh Surana, Founder, RSM India

For Resident Taxpayers

The Finance Act 2020 abolished the idea of Dividend Distribution Tax (‘DDT’) and likewise withdrew the exemption u/s 10(34) of the Income Tax Act, 1961 (‘IT Act’) ensuing into taxability of dividends within the fingers of the last word shareholders. Accordingly, Section 194 of the IT Act supplied that the businesses declaring dividends are underneath an obligation to withhold tax @10% earlier than making any dividend fee to it’s resident shareholders. 

However, the corporate is underneath no obligation to deduct tax at supply, if the combination quantity of dividend distributed/probably to be distributed in a specific monetary yr doesn’t exceed Rs. 5,000 and the dividend is paid by any mode aside from money.

Further, in accordance with the provisions of part 194K, TDS @10% is to be deducted by an individual, earlier than paying income in respect of models of mutual funds or different specified firms to a resident investor. Akin to part 194, TDS just isn’t to be deducted if the combination quantum of income paid/probably to be paid in a specific monetary yr doesn’t exceed Rs. 5,000 or if the income is within the nature of capital features.

Individuals whose complete income exceeds the Basic Exemption Limit (BEL) are required to file their Income Tax Return (ITR) in accordance with the provisions of part 139 of the IT Act. Thus, a person who derives dividend income in extra of Rs. 5,000 in a specific FY and whose complete income doesn’t cross the BEL, can be required to file an income tax return solely for the aim of claiming the refund of TDS on dividend.

Thus, resident people whose estimated complete annual income (together with income from dividends) is under the BEL, can submit Form 15G to the corporate or mutual fund paying the dividend. In the identical situation, resident senior residents can apply in Form 15H for requesting no deduction of TDS. 

Apart from these, each these types might be filed by the resident people in case their complete tax legal responsibility is nil after taking the dividend income into consideration. In such case, although the taxpayer can be required to furnish his tax return (supplied their complete income exceeds the BEL), they’ll avoid TDS on such dividend.

These types are legitimate for a monetary yr and should be submitted afresh for each FY wherein the person intends to avail the good thing about no deduction. It is recommendable that the taxpayers submit such types at first of each FY so as to avoid deduction of TDS.

For Non-Resident (NR) Taxpayers

As per part 195 learn with part 115A of the IT Act, firms declaring dividends should withhold tax @20% (plus relevant surcharge and cess) earlier than remitting dividend to Non-Resident shareholders. Further, part 90(2) of the IT Act offers each taxpayer can select between the useful charge of TDS as per income tax provisions or related DTAA. 

However, so as to declare the good thing about DTAA, the NRs might get hold of the required paperwork reminiscent of Tax residency certificates, Form 10F, and so on. All these paperwork must be submitted by the non-resident taxpayer to the corporate/ mutual fund on the time/ earlier than such dividend fee is made, for availing of the useful withholding tax charge.

Gautam Kalia, SVP and Head Super Investor at Sharekhan by BNP Paribas

All the dividend income acquired are taxable and the TDS charge of 10% is charged if the dividend income paid is in extra of Rs.5000. If the investor’s annual income is under the exemption restrict then he can submit the shape 15G/15H for not deduction of TDS. Investors who need common income might take into account SWP facility as an alternative of dividend income from mutual fund schemes to avoid TDS. The SWP facility is withdrawal from scheme and all of the withdrawal contains principal and capital features. Investors want to pay tax on capital achieve solely as per the brief time period or long run achieve tax.

Ruchika Bhagat, MD Neeraj Bhagat & Company

Submit Form 15G/15H: If you’re eligible for a decrease tax deduction or no tax deduction in any respect, you’ll be able to submit Form 15G/15H to the corporate or mutual fund home the place you maintain the dividend-paying shares or mutual funds. These types declare that your complete income for the yr is under the taxable restrict or that your tax legal responsibility is nil.

Invest in progress possibility: Instead of investing in dividend-paying shares or mutual funds, you’ll be able to decide for the expansion possibility. Under the expansion possibility, the earnings made by the corporate or mutual fund are reinvested within the enterprise, and no dividend is paid out. Therefore, no TDS is relevant on such investments.

Check the tax treaty with different nations: If you’re an NRI (Non-Resident Indian) and are eligible for a tax exemption underneath the tax treaty between India and your nation of residence, you’ll be able to submit the required paperwork to avoid TDS on dividend income.

Plan your investments: If your dividend income is probably going to exceed the taxable restrict, you’ll be able to plan your investments in such a approach that your complete income stays under the taxable restrict. This might be executed by investing in tax-saving devices or by timing your investments to avoid a excessive income in any specific monetary yr.

Claim refund: If TDS has been deducted, and you aren’t liable to pay tax, you’ll be able to declare a refund whereas submitting your income tax return.

Mushraff Hussain, COO of Ezeepay

You can successfully avoid or reduce TDS on your dividend income and profit absolutely out of your funding returns. Let me stroll you thru :

1. If your complete dividend income is lower than Rs. 5,000 in a monetary yr, then TDS is not going to apply to your curiosity income acquired.

2. You can submit Form 15G/15H to the corporate or mutual fund declaring that your complete income for the monetary yr is under the taxable restrict. Thus, TDS shouldn’t apply to your dividend income.

3. If you will have invested in a tax-free bond, you don’t have any TDS. will apply to the curiosity income acquired.

4. You can put money into progress mutual funds as an alternative of dividend mutual funds to avoid TDS.

5. If you fall underneath a decrease tax bracket, then you’ll be able to declare your dividend income in your tax return and declare a refund for the TDS deducted.

Yashoraj Tyagi, CTO &; CBO, CASHe

To avoid TDS (Tax Deducted at Source) on dividend income, you’ll be able to comply with these steps:

1. Submit Form 15G/15H: If your complete income for the monetary yr is under the taxable restrict, you’ll be able to submit Form 15G (for people) or Form 15H (for senior residents) to the corporate or mutual fund home from which you’re receiving the dividend income. This type declares that your income for the monetary yr is under the taxable restrict, and due to this fact, TDS shouldn’t be deducted out of your dividend income.

2. Invest in tax-free dividend income funds: You can put money into mutual funds that supply tax-free dividend income. Some mutual funds put money into shares that generate tax-free dividends, and the income acquired from such funds is exempt from tax.

3. Opt for progress possibility: Instead of receiving dividends, you’ll be able to decide for the expansion possibility in mutual funds. In this feature, the dividends are reinvested within the fund, which will increase the NAV (Net Asset Value) of the mutual fund. The features made on the funding are taxed solely on the time of redemption, and there’s no TDS on the dividend income.

4. Plan your investments to optimize tax advantages: You can plan your investments to optimize the tax advantages. For instance, you’ll be able to put money into tax-saving mutual funds, PPF, or NPS to scale back your taxable income and avoid TDS on dividend income.

It is necessary to notice that even when TDS is deducted on your dividend income, you’ll be able to declare a refund by submitting your income tax return. Therefore, it’s advisable to declare your dividend income in your income tax return and declare the refund if relevant.

Prateek Toshniwal, Co-Founder of IVY Growth Associates, MI Capital (UAE)

Smart investing is not nearly making earnings, it is also about minimizing your tax liabilities. If you are incomes dividend income, it is essential to take steps to avoid TDS. Firstly, be certain that your complete dividend income from all sources is under the taxable restrict of Rs. 5,000. If it exceeds this restrict, take into account investing in tax-saving devices reminiscent of ELSS, PPF or NPS to scale back your taxable income. 

Additionally, you’ll be able to decide for the expansion possibility as an alternative of the dividend possibility whereas investing in mutual funds, as it will defer the tax legal responsibility till you redeem your funding. Another approach to avoid TDS on dividend income is by investing in shares that supply decrease dividend yields, as these are taxed at a decrease charge. Remember, being tax-savvy is as necessary as being investment-savvy, and taking the proper steps can go a great distance in maximizing your returns.

S Ravi, Former Chairman of Bombay Stock Exchange (BSE)

Tax Deducted at Source (TDS) is a tax collected by the federal government from the income earned by a person or an organization. In the case of dividend income, TDS is deducted by the corporate paying the dividend. However, there are methods to avoid TDS on dividend income:

1. Submit Form 15G/15H: Individuals whose complete income is under the taxable restrict can submit Form 15G/15H to the corporate paying the dividend. This will be certain that no TDS is deducted from the dividend income.

2. Opt for the brand new tax regime: Under the brand new tax regime, dividend income is taxed on the particular person’s relevant income tax charge, and no TDS is deducted.

3. Invest in tax-free dividend income funds: Investing in tax-free dividend income funds will help people avoid TDS on dividend income. These funds put money into firms that don’t pay dividend distribution tax (DDT) and, due to this fact, no TDS is deducted.

4. Submit PAN card particulars: Individuals can avoid TDS on dividend income by submitting their PAN card particulars to the corporate paying the dividend. This will be certain that TDS is deducted at a decrease charge or by no means, relying on the person’s relevant income tax charge.

5. Claim a refund: Individuals who’ve paid TDS on dividend income can declare a refund by submitting their income tax returns. This might be executed by mentioning the TDS quantity within the tax return and claiming a refund of the surplus tax paid.

Malhar Majumder, Partner – Positive Vibes

Effective 1st April 1, 2020, dividends will not be tax-free, as per the brand new amendments put forth within the Finance Act, 2020. However, no tax is deducted on the dividends paid to resident people, if the combination dividend distributed or probably to be distributed in the course of the monetary yr doesn’t exceed INR. 5000. A ten% TDS is payable on the dividend income quantity over INR 5,000 in the course of the fiscal yr. 

If the PAN just isn’t submitted, the TDS charge can be 20%. If a person’s income, which incorporates the dividend income is lower than INR 2.5 lakh, it’s not taxable. If your taxable income is lower than ₹2.5 lakh, however you will have paid TDS on dividends, submit Form 15G or Form 15H for people over 60 years previous to notify the corporate or the share registrar and switch agent of mutual funds.

Nirav Karkera, Head of Research, Fisdom

Dividends are taxable by the hands of the investor whereas a TDS of 10% is relevant on dividend payouts exceeding INR 5,000 in a monetary yr. If a person’s complete income together with the dividend income is under the non-public income tax exemption restrict, they’ll submit the 15G/15H, as relevant, to avoid TDS.