Earlier, companies deducted dividend distribution tax and handed over the funds to the shareholders. Budget 2020 tweaked the tax law this financial year and made dividends taxable in the hands of investors at the individual tax rate of the investor. However, companies were asked to deduct TDS. To give relief to small taxpayers, only dividend income above Rs 5,000 were subjected to TDS.
What happens if you don’t fall in any tax bracket in the first place? If your annual income is less than Rs 2.5 lakh and yet have been subjected to TDS for the dividends, file a Form 15G (all individual tax assesses) or 15H (individual above 60 years of age) to inform the company or the share registrar and transfer agent (RTA) about the non-taxability of your income.
The company’s registrar and transfer agent (RTA) or your demat account itself may have the details. Check if the latter offers a common form for your entire portfolio. Alternatively, you can find Form 15G/H online on your company’s or RTA’s website. Fill in the basic details: company’s name, if shares are held physically or through a depository participant (DP), your DP ID or Client ID and folio number.
Another issue that shareholders are grappling with is that the TDS collected from their dividend payment is not reflecting in the Annual Tax Statement or Form 26AS. This is because only when your company pays the TDS to the government – and this gets reflected in your Form 26AS – would you be eligible for a tax refund. The tax credit in Form 26 AS would reflect after the company files the TDS return for that quarter in the next quarter. For example tax collected in the June 2020 quarter would be paid in July-September 2020.
Check if your PAN is updated in your demat account. If your PAN is not registered with your demat account, you are subjected to a higher 20% TDS. Also, check for any emails or letters that your companies may have sent you, for any links or references to Form 15G/H, if you are eligible for a refund. Else, contact your company’s RTA. If you don’t know who your RTA is, then check your company’s website for its RTA’s details. You might need to do that for as many companies that have paid you dividends on which you are eligible for a TDS refund.
Once you get the TDS certificates, ensure that your Form 26AS reflects it, by April 2021. Finally remember, the TDS on dividends deducted in financial year 2020-21 is 7.5%, but the actual tax would depend on the bracket you fall under, based on other income that you have.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 12 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.