As Dividend Season Is On For Infosys, Hindustan Copper And Others, Here’s How To Calculate Your Tax Liability

Bengaluru-headquartered Infosys Ltd. has declared an interim dividend of Rs 16.5 per share, payable on November 10, for investors on record as of October 28. 
 
The Infosys (INFY) board made the announcement on October 13. Some of the people related to the promoters of Infosys include Akshata Murthy, new UK Prime Minister Rishi Sunak’s spouse and daughter of Infosys founder Narayana Murthy, Gaurav Manchanda, others.
 
Likewise, state-run Hindustan Copper (HINDCOPPER) announced a dividend of 23.2 per cent, or Rs 1.16 per share, for fiscal 2022 for shareholders on record as of September 22, 2022. Shareholder payments were due on October 26.
 
Vedanta (VEDL) and the Oil and Natural Gas Corporation (ONGC) Limited have also declared dividends recently. As the dividend season is on for multiple companies, investors should know their tax liability for the payments they receive as dividends. 
 
Also, if they have proficiency in calculating dividend tax would immensely help, especially when the dividend tax laws changed some two years ago. Until March 31, 2020, dividends received from an Indian company were tax-exempt. 
 
Additionally, the government has withdrawn the dividend distribution tax (DDT), paid by dividend-paying companies, and 10 per cent tax paid by dividend recipients who received over Rs 10 lakh.

Dividend-Paying Companies In 2022

●    Vedanta (VEDL): According to the Bombay Stock Exchange (BSE), Vedanta has declared three interim dividends so far this year. It declared an interim dividend of Rs 13 per share in March 2022, Rs 31.5/share in May 2022, and Rs 19.5/share in July 2022. 

●    Rural Electrification Corporation (RECLTD): REC declared an interim dividend of Rs 6/share in February 2022 and a final dividend of Rs 4.8/share, BSE data shows.

●    National Mineral Development Corporation (NMDC): NMDC declared an interim dividend of Rs 5.73/share in February 2022.

●    Oil and Natural Gas Corporation (ONGC): ONGC declared an interim dividend of Rs 1.75 per share in February 2022 and a final dividend of Rs 3.25/share in August 2022.

●    Oil India (OIL): The BSE data showed that Oil India paid an interim dividend of Rs 5.75/share in February 2022 and a final dividend of Rs 5/share in September 2022.

Breakdown of Dividend Taxation For Foreign And Indian Firms

●    Tax Deducted At Source (TDS): Dividend is taxable as income from other sources for shareholders. For a resident individual, TDS of 10 per cent is applicable if the dividend amount is in excess of Rs 5,000. 

Moreover, if you have not submitted your PAN card details to the dividend-paying company, then 20 per cent TDS will be deducted instead of 10 per cent.

●    Dividend is Taxed As Business Income For Those Who Trade In Shares: Ajay Rotti, Partner, Dhruva Advisors LLP, a Mumbai-based tax and legal firm, said that a taxpayer may deal in securities either as a trader or as an investor so if he earns dividend income from trading activities, "the same is taxable under the head "profits and gains of business."

"Where dividend is liable to tax as business income, the taxpayer can claim the deductions of all those expenditures which have been incurred to earn that dividend income such as administrative expenses, bank charges, interest on loan, others," Rotti further added.

●    Dividend is Taxed At Slab Rate For Individuals Holding Shares As Investment: Saurav Sood, a chartered accountant (CA) and practice leader (International tax and transfer pricing) at SW India, a tax, accounting and outsourcing services company, said dividend is taxable as income from other sources.

"If the recipient is an individual, the dividend shall be taxed according to his respective income tax slab rate. However, taxes withheld on such dividends (TDS) will be available as tax credit while filing the tax return,” Sood of SW India further added. 

●   Dividends For Foreign and Indian Firms Treated Same: There is no distinction in the income tax law regarding dividend received from an foreign company or Indian company, and both are to be taxed as income from other sources.

Archit Gupta, the chief executive officer (CEO) of Clear (formerly ClearTax), a tax filing assistance company, said that dividends are taxed in India and might as well be taxed in the foreign country, depending on the respective laws.

Indians who paid tax in India and overseas can claim double taxation relief if the Indian government has signed a double taxation avoidance agreement with the concerned country where the foreign entity is based. However, people can still claim relief if the double taxation treaty is not available under section 91.

●    Deductions Allowed: The Finance Act, 2020, stipulates that dividend taxation and interest expense incurred will be allowed as a deduction, provided it should not exceed 20 per cent of the dividend income. This means any other expenses, like commission, brokerage on shares, etc., are not allowed for deduction.
 
For example: Suppose you received Rs 5,100 as a dividend from a company in a year. So, TDS of Rs 5100*10%= Rs 510 will be deducted, and if suppose you incurred interest on a loan of Rs 3,000 for buying shares, only Rs 1,020 (20 per cent of Rs 5,100) will be allowed as a deduction for interest. “The interest should have been directly incurred to earn such dividend income,” added Gupta.