Prior to today’s session of Budget 2016, dividends received from listed companies was not taxed in the hands of the shareholders (Individuals/ HUF/ Resident of India). The company paid taxes (more than 28% effectively) on that money before it was paid out.
Effective 1 April, 2016 any dividend income from a company received by an individual or a HUF in excess of Rs. 10 lakhs in a year, shall be taxed at a rate of 10%. This is only limited if the dividend income is greater than 10 lakhs in a year. The first 10 lakh of dividend is tax free.
It also applies to
mutual fund dividend payouts and private company dividends.
Update: Alert reader Prajesh points out that this doesn’t apply to mutual fund units yet (since the section change applies to 115-0, which is dividend from stocks, while dividend from mutual funds is in 115-R). We stand corrected.
The rule does not cover or talk about non-individual investors which implies that Trusts, Companies (Parent companies that receive dividend income from their subsidiaries) will not have to pay the 10% tax. The parties that are affected are individuals/HUFs and firms.
This shall be applicable from the 1 April, 2016 which means that the dividends declared before 31 March, 2016 would not be taxable.
However, dividends taxed would mean effectively a lower recognized return on dividends received from equities.
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