For impact from FY 2020-21, the company’s DDT charging was abolished and dividend earnings and mutual funds are subject to tax instead, according to their tax status in the hands of shareholders. For effect from this year, the government once again switched to a conventional tax structure.
Although businesses are now expected to ensure that the withholding tax complies at source, people may need to shell off additional tax on income from dividends and income from mutual funds. For companies to determine the amount of taxes to be withheld, they will need to check residence conditions for investors.
If non-resident shareholders intend to obtain tax benefits, they will then have to receive the necessary documents from shareholders such as the home country Tax Residence Certificate, Form 10F statement, etc. To withhold taxation.
Mutual fund dividends
Subject to 10% TDS dividends and revenues from common funds, if the person received exceeds Rs 5,000 in one year. For the case of profits in the form of capital gains from the selling of units of mutual funds, however, no TDS shall be deducted. The tax so deducted shall be available as a credit against the tax payable by taxpayers on dividend income.
Until FY 2019-20, additional income tax liabilities except DDT were paid by the Company for high net worth persons with dividend income exceeding Rs 10 lakh. Individual shareholders were not entitled to claim the DDT deduction paid by the corporation for its dividend income tax liability. This double taxation phenomenon is, however, eliminated under the new system. Interest deduction paid for the income of the dividend can be claimed on taxable income but the quantity of such deduction cannot be greater than 20 percent of the income of the dividend.
Therefore, investors should wisely choose from mutual funds shares or units. Investing in growth-oriented funds may be useful, because the income is charged for tax on selling the units under the heading “capital gains” in the sales year, while the revenues of dividend-oriented funds are taxable on the ordinary revenue tax rate in the receiving year. Moreover, some businesses believe in dividends and allocate daily earnings, while others tend to diminish company profits, accumulate and retain the share value, which would provide shareholders with long-term equity benefits, once they intend to liquidate the investment.
