You can legally save tax or avoid paying tax on dividend income in India, and you should absolutely do that. Yes, tax money goes to nation-building, but income tax is not the only tax you pay. You can take the money you saved on tax and buy something and pay GST. Which will be used to build the nation.
When I search in Income Tax Authorities website about dividend income tax in India this is what I found
I own shares of various Indian companies and receive dividends. Is it taxable?
No. Dividend declared by Indian companies is not taxable in the hands of the shareholders because taxes on distributed profits have already been borne by the company.
So,Is dividend income taxable in India? In most cases for retail investors dividend income in India is not taxable. If you are receiving the dividend from an Indian company in India, then you do not have to pay tax up to 10 lakhs rupees. I believe you will have to declare this income in ITR, it is just not taxable. Any dividend income above that might be taxable, per your tax bracket. Do not forget to ask your tax consultant.
If you receive a dividend from a foreign company in India, that is taxable per your tax bracket. So, say your income comes under 10% tax bracket, and you earn 50000 rupees in dividend from Apple, you will have to pay 5000 rupees tax on that. Again, do not forget to check with your tax consultant. As these rules are changing frequently.
Dividend income in India
One can earn a dividend from owning direct stocks. You can buy equity mutual fund and opt for dividend, and that equity mutual fund can pay you a dividend. Same with Debt mutual fund, in case you select dividend option, you might get a dividend payment.
Any income from any debt instrument is taxable. Be that an interest income from bond or dividend from debt mutual fund. There are tax-free infrastructure bonds, but the interest you get is lower anyway.
If you buy a hybrid fund and with dividend option, in that case, what you need to check is if the fund has 65% equity. As long as it holds at least 65% equity instruments, the dividend will not be taxable, as long as the total dividend income is less than 10 lakhs.
If your mutual fund is a pure equity fund, in that case, the rule is simple. As long your total dividend income is less than 10 lakhs, you should be good.
You can own direct equity instruments, be it common stocks or preferred stocks, the dividend you earn from them, as long as the total income is less than 10 lakhs you would not need to pay tax.
Dividend Income from an Indian company is taxable if
Dividend income in India exceeds 10 lakh for an individual. This 10 lakhs is not necessarily dividend from one single company but it is the total income from your portfolio. You might have 1 stock or 10 stocks. As these rules keep on changing time to time, I would strongly suggest checking with your tax consultant too.
IF you make 15 lakhs in dividend income, in that case, the amount above 10 lakh, in this case, the 5 lakh would be taxable income.
Do you have a dividend portfolio or are you working on one? In case you want to know how much dividend income you would need for retirement, here is a post I made.
to by GotCredit