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.
Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.