InvestorQ : What type of taxes to be paid on dividends in the stock market and mutual funds?
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What type of taxes to be paid on dividends in the stock market and mutual funds?

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7 months ago
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From 01 April 2020, the dividend distribution tax (‘DDT’) was abolished, and the Finance Act 2020 has shifted back to the classical system of taxing dividends in the hands of shareholders/unitholders. Technically, the dividend is income in the hands of the shareholders and unitholders, and not in the hands of the company and Mutual Funds.

Also, with the advent of technology and easy tracking system available, now the process of withholding tax or offering the dividend income to tax is no longer cumbersome.

Hence, from FY 2020-21 onwards, dividends from domestic companies and mutual funds are taxable in the hands of the shareholders and unitholders at their applicable slab rates and DDT has been abolished. Domestic companies and mutual funds are liable to withhold tax at 10% on dividend income paid to resident individuals in excess of Rs 5,000.

However, as a temporary relief measure due to COVID-19, the tax withholding rate has been reduced to 7.5 percent till 31 March 2021.


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