TDS on Dividend Income: How to get relief if you don’t have taxable income

Dividend income becomes taxable in the hands of investors after removal of the Dividend Distribution Tax (DDT).

As dividend income becomes taxable in the hands of investors after removal of the Dividend Distribution Tax (DDT), tax deduction at source (TDS) becomes applicable on dividend payout u/s 194 of the Income Tax Act.

Accordingly, 10 per cent TDS is applicable on dividend income of over Rs 5,000 in a financial year in case the PAN of the investor is available. In case the PAN is not available, the TDS rate will be 20 per cent.

The details of dividend income and TDS will now be available on the new format of Form 26AS to make filing of Income Tax Return (ITR) easier and to make suppression of income harder.

However, in case an individual has only dividend income up to Rs 2.5 lakh or the total income, including the dividend income, is not taxable, filing of return of income will become necessary due to the tax deduction and to claim back the TDS charged on dividend income as tax refund.

The good news is that, like in case of bank fixed deposit (FD), you may now deposit Form 15G (for individuals up to 60 years of age) or Form 15H (for senior citizens) to ensure that no TDS is charged on your dividend income, in case the total income in the financial year won’t cross the Rs 2.5 lakh mark.

From DDT to TDS: Will mutual fund investors get more dividend in hand or less?

For dividend on shares, an individual investor may submit the Form 15G or Form 15H – as applicable – in the company directly.

In case of the Dividend Payout option on Mutual Fund schemes, the applicable form may be deposited either directly to the Asset Management Company (AMC) or to their Registrar and Transfer Agents (RTA) – like CAMS and KFintech (branch of Karvy).

The relevant Form 15G or Form 15H may be submitted online by visiting the sites of the companies, AMCs or RTAs.

In case of applying for MF schemes though their RTAs, the details to be entered are – PAN, name of the Fund House (AMC), Folio Number, Estimated income from Income Distribution cum Capital Withdrawal Option (IDCW), expected Total Income in the Financial Year and Year for Declaration.

If your total income is not taxable and have IDCW as part of income, you should submit the Form 15G/H quickly. Otherwise, you have to file your ITR in case once you receive dividend after TDS is applied on it.