Those who invest in the stock market have to pay many types of taxes on their earnings. Many companies also give dividends to their investors from time to time every year. But do you know that companies also deduct tax before giving you dividends? But this tax is levied only when your dividend is above a certain amount. How and in what way is tax levied on dividends (dividend tax rules)? What is the rule and law behind it? Let's try to find the answers to all these questions.

Under which rule of Income Tax is a tax levied on dividends?

Tax is levied on dividends under section 194 of the Income Tax Act 1961. It was also amended in the year 2020. According to this, dividends given by any company after 1 April 2020 will come under the purview of tax. The company will have to deduct tax while giving dividends if approved in the next Annual General Meeting. However, how much tax you will have to pay on dividends depends on whether you are living in India or outside India. Along with this, TDS (TDS on dividend income) will be deducted from the dividend only when the amount of the dividend is above a certain amount.

How much tax do domestic investors have to pay on dividends?

If you are an Indian investor investing while living in India and a company is giving you dividends, then a 10% tax will be deducted under section 194 of Income Tax. For this, your Aadhaar PAN must be linked to the demat account. The dividend money will be taxable under your income tax.

If you do not provide a PAN card, will you have to pay this much tax on a Dividend?

If you have not linked your PAN card to your demat account, then according to the rules, the company will deduct 20% TDS from your dividend. If you do not want more TDS to be deducted from your dividend, then you will have to submit a PAN card. However, in today's time, a PAN card is required only when opening a demat account.

In this situation, there will be no tax on dividend
If you are a domestic investor and the amount of dividend is not more than Rs 10,000, then in such a situation, you will not have to pay tax.

If the shareholder provides Form 15G, which meets all the criteria, then TDS is not deducted from it. However, it depends on the company whether it accepts this form or not.

How much tax do NRI investors have to pay on dividends?
If you are an NRI investor, then section 195 or section 196D of the Income Tax Act will apply to you. Under this, the company will deduct tax on your dividend. According to the rule, a TDS of 20% on the company dividend will be applicable along with surplus charge. This rule also applies to FPI investors.

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