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Tax On Dividend Income in India 2018
Tax On Dividend Income in India 2018
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: Budget 2018-19 Highlights
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Dividend Distribution tax of 10% on distributed income by equity-oriented mutual funds has been introduced
Domestic Company
-if aggregate dividend income received during the Nil Section 10(34)
year is less than Rs. 10 lakh
-if aggregate dividend income received during the 10% Section
year is more than Rs. 10 lakh 115BBDA
However, under Section 115BBDA (as introduced in the Finance Act, 2016), if aggregate dividend received by an
individual/HUF from companies exceeds Rs. 10,00,000, it is liable to pay tax at the rate of 10% on dividend
income received in excess of Rs. 10 lakh. Section 115BBDA applies only on dividend income received from
domestic companies under Section 10(34) and excludes dividend income received from mutual funds under
Section 10(35).
Illustration 1: Tax at the rate of 10% on dividend income received by Indian company under section
15BBDA
Mr. Mehta received Rs. 15 lakh as dividend from various Indian companies during the FY17-18. Since, his
dividend income for the year exceeds Rs. 10 lakh; he is liable to pay tax at the rate of 10% on excess dividend
income earned over Rs. 10 lakh. In this case, he is liable to pay a tax of 10 % on Rs. 5 lakh (dividend income in
excess of Rs. 10 lakh), which translates into a tax liability of Rs. 50,000.
As per section 10(35) of Income Tax Act, any income received by an individual/HUF as dividend from a debt
mutual fund scheme or an equity mutual fund scheme is fully exempt from tax. In addition to tax in the hand of
investors, dividends declared by domestic companies also attract a Dividend Distribution Tax (DDT). DDT varies
by the type of entity declaring the dividend.
Type of entity declaring Dividend distribution tax rate for Relevant section of
dividend Individuals/HUFs Income Tax Act
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Domestic companies 17.304% (including 12% surcharge and Section 115-O
3% education cess) ☰ Menu
Equity mutual funds 10% Section 115-R
Debt mutual funds (including At the rate of 28.84% (including Section 115-R
liquid mutual funds) surcharge and cess)
Illustration 2: A company declared a dividend of Rs. 200 to its shareholders. The company is liable to pay a
dividend distribution tax of 17.304%, which translates into a tax liability of Rs. 35. The company will have to
deduct this tax before crediting the dividend to the account of its shareholders which in this case will be an
amount of Rs. 165.