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Tax on Dividend Income

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Dividends are tax free in the hands of the investors.

However, a 10% Dividend Distribution Tax (DDT) is being charged by the mutual fund house even before dividend is paid to the investors.

Prior to FY1819, only debt-oriented mutual fund schemes used to charge DDT.

However, starting FY1819, both debt and equity-oriented mutual funds will charge DDT.

There will be no Income-Tax on Dividend income from Equity Shares and Mutual Funds in India.

Also, if Dividend income is your sole source of income and if you are within the taxable income slabs, you do not even have to file your Income-tax Return Forms or ITR Forms.

However, there is a special tax applicable when the dividend income exceeds Rs. 10 lakhs per year.

Dividend distribution tax on dividend payouts to unit holders in an equity oriented fund

The existing provisions of section 115R, inter alia, provide any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax on such distributed income at the rate specified in the section. However, in respect of any income distributed to a unit holder of equity oriented funds is not chargeable to tax under the said section.

With a view to providing a level playing field between growth oriented funds and dividend paying funds, in the wake of new capital gains tax regime for unit holders of equity oriented funds, it is proposed to amend the said section to provide that where any income is distributed by a Mutual Fund being, an equity oriented fund, the mutual fund shall be liable to pay additional incometax at the rate of ten per cent on income so distributed. For this purpose, equity oriented fund will have the same meaning assigned to it in the new section 112A of the Act.

This amendment will take effect from 1st April, 2018.

Source: Memorandum Explaining the Provisions in The Finance Bill, 2018PDF File Opens in a new window Page 6

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