Dividend income refers to the earnings distributed by companies to their shareholders. In India, dividends are subject to Dividend Distribution Tax (DDT) paid by the company. As an individual receiving dividends, you are not required to pay tax on dividend income. However, starting from April 1, 2020, dividend income above ₹5,000 is taxable in the hands of the recipient at their applicable income tax slab rates. It's important to include dividend income while filing your income tax return for proper reporting.
Tax Treatment of Interest Income
Interest income earned on investments, such as fixed deposits, savings accounts, bonds, or debentures, is taxable in India. The interest income is treated as "Income from Other Sources" and is subject to tax at the applicable income tax slab rates. It's crucial to accurately report your interest income while filing your income tax return. Financial institutions deduct Tax Deducted at Source (TDS) on interest income above a certain threshold, which can be adjusted while calculating your final tax liability.
Filing Taxes for Dividend and Interest Income
If your total income, including dividend and interest income, exceeds the taxable threshold specified by the Income Tax Act, currently set at ₹2,50,000 for individuals under 60 years of age, you are required to file your income tax return. Use the appropriate form, such as ITR-1 or ITR-2, depending on the complexity of your investments and income sources. Accurately report your dividend and interest income, including any TDS deducted, while filing your tax return.
Tax Deductions and Investments
While dividend and interest income are taxable, there are certain deductions and exemptions available that can help reduce your overall tax liability. For example, you can claim deductions under Section 80C for investments in tax-saving instruments like Public Provident Fund (PPF) or Tax-Saver Fixed Deposits. It's advisable to consult a tax professional or refer to the Income Tax Act for specific deductions and exemptions based on your circumstances.
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