Tax are going to be deducted from the dividend at the time of payment by the company, if the total amount of dividend being paid to the individual during the financial year is more than Rs 5,000 at the rate of 10 per cent.
From 1st April 2020, dividend received on shares and/or from mutual fund schemes is taxable in the hands of an individual at the rate applicable to his/her income. So this year, individuals should remember to submit Form 15G or 15H, as applicable, to the payer to avoid TDS if they're eligible to do so.
This is because tax are going to be deducted from the dividend at the time of payment by the company if the total amount of dividend being paid to the individual during the fiscal year is more than Rs 5,000. Tax on the dividend, are going to be deducted at the rate of 10 per cent.
A resident individual can furnish Form 15G (in case of non-senior citizens) and Form 15H (in case of senior citizens) for nil or non deduction of tax (TDS) from the dividend income, just in case the tax on his estimated total taxable income for that fiscal year is nil.
There are certain conditions that one must satisfy so as to be eligible for submitting Form 15G or Form 15H to avoid TDS on dividend income. Further, rules regarding submission of Form 15G and 15H are different.
Rules regarding submission of Form 15G
A resident individual can furnish Form 15G for non-deduction of tax (TDS) from the dividend to company and/or mutual fund. Such declarations are often filed by the individual if total dividend income doesn't exceed the utmost exemption limit and tax on the estimated total income for the financial year during which such income is to be included is nil.
This means that:
a) You must be a resident individual.
b) Age should be below 60 years
c) Total dividend income estimated to be received during the fiscal year should be but the essential exemption limit of Rs 2.5 lakh
d) Total income tax liability within the fiscal year should be nil
If you satisfy the above mentioned conditions, then you're eligible to submit Form 15G to the corporate and/or mutual fund house.
An HUF also can submit Form 15G to avoid TDS on dividend income
An HUF can invest in shares of a corporation and in mutual funds through a Karta. The karta of the HUF is permitted to submit Form 15G to the corporate to avoid tax withholding from dividend from shares and mutual funds."
While submitting Form 15G by a Karta of HUF, it must be ensured that total dividend income should be below the essential exemption limit i.e. Rs 2.5 lakh and income tax payable on total income for the relevant fiscal year should be nil.
Rules regarding submission of Form 15H
A senior citizen (age 60 years and above) can submit Form 15H to the corporate and/or mutual fund house if the subsequent conditions are satisfied:
a) Senior citizen must be a resident individual
b) Income tax payable on your total income for the relevant fiscal year should be nil.
Senior citizens can submit the form 15H to the corporate and/or mutual fund albeit the estimated total dividend income to be received by them during a fiscal year is quite the essential exempt level. However, total tax liabilities within the fiscal year should be zero.
Remember from FY 2020-21, if a Senior Citizen (aged 60 years and above but below 80 years of age) opts for the prevailing tax regime, then the essential exemption limit applicable will be Rs 3 lakh. In case of a Super Senior Citizen (aged 80 years and above), the essential exemption limit are going to be Rs 5 lakh. However, if the Senior Citizen or super Senior Citizen decides to choose the new tax regime, then the essential exemption limit applicable are going to be Rs 2.5 lakh.
In the fiscal year 2020-21, the essential exemption limit for a Senior Citizen will depend upon whether he/she opts for the old tax regime or new tax regime. However, for the aim of submitting Form 15H, the essential exemption limit will be ignored.
Can I submit Form 15G/Form 15H if taxable income doesn't exceed Rs 5 lakh?
As per the present income tax laws, regardless of whether the individual opts for the new or existing tax regime, no tax is payable if the taxable income doesn't exceed Rs 5 lakh in the financial year.
An individual is eligible for tax rebate of a maximum up to Rs 12,500 under section 87A if the taxable income doesn't exceed Rs 5 lakh within the financial year.
An individual can submit Form 15G/ Form 15H to avoid TDS if the taxable income within the fiscal year doesn't exceed Rs 5 lakh, irrespective whether an individual opts for the new tax regime or existing one. However, just in case of HUF section 87A isn't applicable.
Therefore, just in case of HUF, the entire taxable income including the dividend income must not exceed the essential exemption limit of Rs 2.5 lakh.
Remember, new tax regime doesn't allow an individual to claim any tax exemptions and deductions {except for section 80CCD (2)} to reduce their total taxable income. On the other hand, the existing tax regime allows an individual to reduce their total taxable income by availing tax exemptions and deductions.
Also Read: For TDS from salary: Choose your Tax Regime now, says CBDT
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