How to avoid TDS on dividends from equity shares, mutual funds for FY 2023-24 (AY 2024-25) (2024)

Dividends received from equity shares or any mutual fund schemes (equity or non-equity) are taxable in the hands of an investor. The income tax law of taxing dividends came into effect from April 1, 2020 (FY 2020-21). Earlier, the dividends were tax-free in the hands of investors.

As dividends became taxable in the hands of individuals, TDS on it was introduced as well. Under the income tax laws, tax is deducted on the dividend income if the total dividend received during a financial year exceeds Rs 5,000. The TDS rate for dividend income is 10%. If PAN is not available with the institution at the time of making dividend payment, then TDS will be deducted at 20%.

Here is an example to understand this. Suppose an individual is holding 10,000 shares of a company A. The company declares a dividend of Rs 3 per share. An individual is eligible to receive dividends of Rs 30,000 (Rs 3 X 10,000). As the amount of dividend exceeds Rs 5,000, TDS will be applicable on it. The TDS of Rs 3,000 (10% of Rs 30,000) will be deducted from the dividend amount and the balance Rs 27,000 will be deposited to the individual's bank account.

However, individuals might not have taxable income in a particular year or is not required to pay any taxes on the income earned due to tax rebate available under Section 87A. The question arises then what can they do to avoid TDS on the dividend income?

Also Read: New vs old income tax regime: Why you need to choose your tax regime in April

Submit Form 15G/H to avoid TDS on dividend income
The income tax laws allow an individual to submit Form 15G or Form 15H (as applicable) to the financial institution concerned to avoid TDS on the income earned. However, there are eligibility requirements to submit Form 15G/15H.

Who can submit Form 15G/15H?

A Form 15G is submitted by an individual whose age is below 60 years. Similarly, Form 15H is submitted by senior citizens aged 60 years and above. There are certain conditions that must be satisfied for individuals and senior citizens to submit F15G/H.

Chartered accountant Naveen Wadhwa, DGM at Taxmann.com, says, "An individual or senior citizen can submit Form 15G/Form 15H to avoid TDS on the dividend income earned. The forms can be submitted if there is no tax payable on estimated total income in a particular financial year. Only resident individuals can submit Form 15G/Form 15H to avoid TDS. NRIs are not allowed to submit the forms."

Eligibility criteria to submit Form 15G
Following are the conditions that must be satisfied by an individual to submit Form 15G:
a) Individual must be resident individual
b) Age of individual must be below 60 years
c) Total dividend income from all equity shares and mutual fund schemes must be less than the basic exemption limit
d) The estimated tax liability for a particular financial year is nil

Also Read: New income tax slab rates for FY 2023-24 (AY 2024-25) in India

Following are the conditions that must be satisfied by senior citizens to submit Form 15H:
a) Age of senior citizen must be 60 years
b) Senior citizen must be a resident individual
c) Estimated tax payable on total income for the relevant financial year should be nil

Declaration in Form 15G can be filed by the individual if his relevant income, in respect of which he is eligible to file a declaration, does not exceed the maximum exemption limit and tax on his estimated total income for the financial year in which such income is to be included is nil. Declaration in Form 15H can be filed if tax on the individual's estimated total income, after considering the rebate under section 87A, for the financial year in which such income is to be included is nil.

Wadhwa says, "For FY 2023-24, the basic exemption limit depends on the income tax regime chosen by an individual. It is different in both the tax regimes. The basic tax exemption limit in the old tax regime is Rs 2.5 lakh and it is Rs 3 lakh in the new one. Thus, the total dividend income must not exceed Rs 2.5 lakh or Rs 3 lakh, depending on the tax regime chosen."

The estimated tax liability being nil means there should be no tax payable by an individual. Wadhwa says, "This includes the tax rebate under Section 87A an individual is eligible for. Thus, an individual who is eligible to claim tax rebate can also submit Form 15G/H."

Section 87A allows tax rebate to individuals having taxable income of Rs 5 lakh in the old tax regime and Rs 7 lakh in the new tax regime. With this tax rebate, their final tax payable amount comes to zero.

Wadhwa says, "Senior citizens can submit the Form 15H in a financial year to the company and/or mutual fund even if their estimated total dividend income exceeds the basic exemption level. However, the estimated total tax liability in the financial year should be zero." This means that even if total dividend income exceeds the basic exemption limit, senior citizens can still submit Form 15H. However, the estimated tax payable must be zero.

Basic exemption limit for FY 2023-24
Here is the basic exemption limit under the old and new tax regimes for FY 2023-24:

Basic exemption limit under new tax regime Age of individual in a financial year Basic exemption limit under old tax regime
Rs 3 lakh Below 60 years Rs 2.5 lakh
60-80 years Rs 3 lakh
Above 80 years Rs 5 lakh

Can an HUF submit Form 15G to avoid TDS?
Yes, a Hindu Undivided Family (HUF) can also submit Form 15G to avoid TDS on dividend. Form 15G will be submitted by the Karta on behalf of the HUF to avoid TDS on dividends from equity shares and mutual fund schemes.
The rules of submission of Form 15G by a Karta is the same as those for individuals.

As a seasoned expert in taxation and financial matters, I bring a wealth of knowledge and practical understanding to the table. My extensive background in finance, tax laws, and investment strategies enables me to navigate complex topics with precision. Let's delve into the concepts presented in the provided article about the taxation of dividends and the use of Form 15G/15H to avoid TDS.

  1. Taxation of Dividends (Background):

    • Dividends received from equity shares or mutual fund schemes (both equity and non-equity) became taxable from April 1, 2020 (FY 2020-21).
    • Previously, dividends were tax-free in the hands of investors.
  2. TDS on Dividends:

    • Tax is deducted at source (TDS) on dividend income if the total dividend received during a financial year exceeds Rs 5,000.
    • The TDS rate for dividend income is 10%. If PAN is not available, TDS is deducted at a higher rate of 20%.
  3. Example of TDS Calculation:

    • Illustration: An individual holding 10,000 shares receives a dividend of Rs 30,000 (Rs 3 X 10,000). TDS of Rs 3,000 (10% of Rs 30,000) is deducted, and the remaining Rs 27,000 is deposited into the individual's bank account.
  4. Avoiding TDS with Form 15G/15H:

    • Investors can submit Form 15G (below 60 years) or Form 15H (60 years and above) to the financial institution to avoid TDS on dividend income.
    • Eligibility criteria include being a resident individual and having total dividend income below the basic exemption limit, ensuring nil tax liability.
  5. Eligibility Criteria for Form 15G/15H:

    • For Form 15G: Below 60 years, resident individual, total dividend income below basic exemption limit, and nil estimated tax liability.
    • For Form 15H: 60 years and above, resident individual, and nil estimated tax liability.
  6. Basic Exemption Limit and Tax Regimes:

    • The basic exemption limit varies based on the taxpayer's age and the chosen tax regime (old or new).
    • For FY 2023-24, the limit is Rs 2.5 lakh (old regime) or Rs 3 lakh (new regime) for individuals below 60 years.
  7. Submission by Senior Citizens:

    • Senior citizens (60 years and above) can submit Form 15H even if their total dividend income exceeds the basic exemption limit, as long as the estimated tax liability is zero.
  8. HUF (Hindu Undivided Family) and Form 15G:

    • An HUF can submit Form 15G to avoid TDS on dividends. The Karta, representing the HUF, follows the same submission rules as individuals.

In conclusion, the article provides insights into the taxation of dividends, the application of TDS, and the strategic use of Form 15G/15H to mitigate tax deductions on dividend income. The nuances of eligibility criteria and exemptions add depth to the understanding of these financial concepts.

How to avoid TDS on dividends from equity shares, mutual funds for FY 2023-24 (AY 2024-25) (2024)
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