ITR Filing 2024: The Importance Of Showing The Right Amount Of Dividend

Dividends are one source of income that is welcome for most investors as this becomes a cash flow for them even when they continue to hold their shares or mutual funds. The longer the equity investments are held the bigger the benefit of dividends seem to look, especially when the investment has compounded for a long period of time.

This can also be a source of trouble for the investor if they do not reflect the income properly in their tax returns. Here are some things that need to be followed so that details are not missed out or wrongly shown while showing dividends for tax purposes.

Dividends are a source of income for the investor from their various investments like shares and mutual funds. Under the current rules, the amount of dividend that is received by the individual is taxable in their hands.

There is no dividend distribution tax that is present now, so the amount that has been received by the individual has to be shown as income in their tax returns at the time of filing of the details. This is shown as income from other sources and the full amount that has been received has to be shown and then subject to tax at the applicable rates.

One of the main things that investors need to follow is the fact that they need to ensure that the correct amount is shown as income and then offered for tax. There is a tax deduction at source that is applicable on the dividend income. This takes place if the dividend received is more than Rs 5,000 in a year. When this happens, the company or the mutual fund that is distributing the dividend will cut tax at the applicable rate, which is 10% if the investor has given their permanent account number. The amount that is received and deposited in the bank is thus the net figure. Many people simply take this figure as income but that is not the correct one. 

Consider the case, when an investor earns Rs 80,000 as dividend from a company. In this case, since the figure is more than Rs 5,000, there will be a 10% tax deducted on the amount and the figure of Rs 72,000 will be deposited in the bank account. In this case, taking Rs 72,000 as the dividend income would be incorrect so the investor will have to add back the tax deducted and then consider Rs 80,000 as income for the year.

In many cases, if there is a small amount of dividend received, which is less than Rs 5,000, then there would be no tax deducted on this. This means that this figure might not appear in the AS 26 and other places. This does not mean that the investor does not have to include this amount for the purpose of taxation because this is still income, which is taxable.

In this case, since there is no tax deduction, the full amount has to be considered as income, which is different from the situation where there is a tax deducted at source. This would have to be added to the other dividend income to get the correct income figure for the year. 

An additional thing that the investor would want to watch out for is the situation where they have mutual funds where the dividend is actually reinvested. In this situation, there is no payout to the bank of the investor, still they have earned the dividend for the year. In this case too, for larger amounts, there would be a tax deducted, and the net figure would be reinvested. Such figures need to be found out from the account statement and then, the gross amount has to be considered as income for taxation. 

Arnav Pandya is the writer is founder of Moneyeduschool.