Altered financial situation? Switch between new and old tax regime

The dividends are to be reported under the ‘Income from other sources’ head in the Income Tax return (ITR) form. Taxpayers can claim a deduction of up to 20 per cent of the gross dividend income towards the interest expense incurred to earn such dividend income. However, no other expenses like commission or remuneration paid to a banker can be claimed as a deduction.

“The taxation of dividends received from shares and mutual funds has undergone significant changes over the years. As of the current tax laws, dividends received from shares and mutual funds are taxable in the hands of the investor. For instance, if an individual receives a dividend of Rs 10,000 from equity shares and Rs 5,000 from mutual funds in a financial year, this total of Rs 15,000 is added to their income and taxed according to their applicable income tax slab rates,” said Swapnil Patni, a chartered accountant.

If an investor falls under the 30 per cent tax bracket, she would be liable to pay Rs 4,500 (30 per cent of Rs 15,000) as tax on dividends received. It’s important for investors to factor in this tax implication while planning their investments and returns.