How to keep away from TDS on dividend earnings 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 in addition 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 beneath an obligation to withhold tax @10% earlier than making any dividend fee to it’s resident shareholders. 

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

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

Individuals whose whole earnings 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 earnings in extra of Rs. 5,000 in a specific FY and whose whole earnings doesn’t cross the BEL, can be required to file an earnings tax return just for the aim of claiming the refund of TDS on dividend.

Thus, resident people whose estimated whole annual earnings (together with earnings from dividends) is beneath 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 kinds may be filed by the resident people in case their whole tax legal responsibility is nil after taking the dividend earnings into consideration. In such case, although the taxpayer can be required to furnish his tax return (supplied their whole earnings exceeds the BEL), they’ll keep away from TDS on such dividend.

These kinds are legitimate for a monetary yr and have to be submitted afresh for each FY through which the person intends to avail the advantage of no deduction. It is recommendable that the taxpayers submit such kinds originally of each FY as a way to keep away from 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 price of TDS as per earnings tax provisions or related DTAA. 

However, as a way to declare the advantage of DTAA, the NRs might acquire the mandatory paperwork reminiscent of Tax residency certificates, Form 10F, and so on. All these paperwork needs to 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 price.

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

All the dividend earnings acquired are taxable and the TDS price of 10% is charged if the dividend earnings paid is in extra of Rs.5000. If the investor’s annual earnings is beneath the exemption restrict then he can submit the shape 15G/15H for not deduction of TDS. Investors who need common earnings might take into account SWP facility as a substitute of dividend earnings from mutual fund schemes to keep away from TDS. The SWP facility is withdrawal from scheme and all of the withdrawal consists of principal and capital positive aspects. Investors must 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 possibly can submit Form 15G/15H to the corporate or mutual fund home the place you maintain the dividend-paying shares or mutual funds. These kinds declare that your whole earnings for the yr is beneath the taxable restrict or that your tax legal responsibility is nil.

Invest in progress choice: Instead of investing in dividend-paying shares or mutual funds, you possibly can go for the expansion choice. Under the expansion choice, the income 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 international locations: If you’re an NRI (Non-Resident Indian) and are eligible for a tax exemption beneath the tax treaty between India and your nation of residence, you possibly can submit the mandatory paperwork to keep away from TDS on dividend earnings.

Plan your investments: If your dividend earnings is more likely to exceed the taxable restrict, you possibly can plan your investments in such a approach that your whole earnings stays beneath the taxable restrict. This may be finished by investing in tax-saving devices or by timing your investments to keep away from a excessive earnings in any explicit monetary yr.

Claim refund: If TDS has been deducted, and you aren’t liable to pay tax, you possibly can declare a refund whereas submitting your earnings tax return.

Mushraff Hussain, COO of Ezeepay

You can successfully keep away from or reduce TDS in your dividend earnings and profit absolutely out of your funding returns. Let me stroll you thru :

1. If your whole dividend earnings is lower than Rs. 5,000 in a monetary yr, then TDS won’t apply to your curiosity earnings acquired.

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

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

4. You can spend money on progress mutual funds as a substitute of dividend mutual funds to keep away from TDS.

5. If you fall beneath a decrease tax bracket, then you possibly can declare your dividend earnings in your tax return and declare a refund for the TDS deducted.

Yashoraj Tyagi, CTO &; CBO, CASHe

To keep away from TDS (Tax Deducted at Source) on dividend earnings, you possibly can comply with these steps:

1. Submit Form 15G/15H: If your whole earnings for the monetary yr is beneath the taxable restrict, you possibly can 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 earnings. This kind declares that your earnings for the monetary yr is beneath the taxable restrict, and subsequently, TDS shouldn’t be deducted out of your dividend earnings.

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

3. Opt for progress choice: Instead of receiving dividends, you possibly can go for the expansion choice 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 positive aspects made on the funding are taxed solely on the time of redemption, and there’s no TDS on the dividend earnings.

4. Plan your investments to optimize tax advantages: You can plan your investments to optimize the tax advantages. For instance, you possibly can spend money on tax-saving mutual funds, PPF, or NPS to cut back your taxable earnings and keep away from TDS on dividend earnings.

It is necessary to notice that even when TDS is deducted in your dividend earnings, you possibly can declare a refund by submitting your earnings tax return. Therefore, it’s advisable to declare your dividend earnings in your earnings 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 income, it is also about minimizing your tax liabilities. If you are incomes dividend earnings, it is essential to take steps to keep away from TDS. Firstly, be sure that your whole dividend earnings from all sources is beneath 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 cut back your taxable earnings. 

Additionally, you possibly can go for the expansion choice as a substitute of the dividend choice whereas investing in mutual funds, as it will defer the tax legal responsibility till you redeem your funding. Another solution to keep away from TDS on dividend earnings is by investing in shares that supply decrease dividend yields, as these are taxed at a decrease price. Remember, being tax-savvy is as necessary as being investment-savvy, and taking the best 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 earnings earned by a person or an organization. In the case of dividend earnings, TDS is deducted by the corporate paying the dividend. However, there are methods to keep away from TDS on dividend earnings:

1. Submit Form 15G/15H: Individuals whose whole earnings is beneath the taxable restrict can submit Form 15G/15H to the corporate paying the dividend. This will be sure that no TDS is deducted from the dividend earnings.

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

3. Invest in tax-free dividend earnings funds: Investing in tax-free dividend earnings funds will help people keep away from TDS on dividend earnings. These funds spend money on firms that don’t pay dividend distribution tax (DDT) and, subsequently, no TDS is deducted.

4. Submit PAN card particulars: Individuals can keep away from TDS on dividend earnings by submitting their PAN card particulars to the corporate paying the dividend. This will be sure that TDS is deducted at a decrease price or under no circumstances, relying on the person’s relevant earnings tax price.

5. Claim a refund: Individuals who’ve paid TDS on dividend earnings can declare a refund by submitting their earnings tax returns. This may be finished 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 usually are not 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 mixture dividend distributed or more likely to be distributed throughout the monetary yr doesn’t exceed INR. 5000. A ten% TDS is payable on the dividend earnings quantity over INR 5,000 throughout the fiscal yr. 

If the PAN is just not submitted, the TDS price can be 20%. If a person’s earnings, which incorporates the dividend earnings is lower than INR 2.5 lakh, it’s not taxable. If your taxable earnings 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 outdated to inform 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 whole earnings together with the dividend earnings is beneath the private earnings tax exemption restrict, they’ll submit the 15G/15H, as relevant, to keep away from TDS.

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