The finer points of taxation of dividends for shareholders

Arnav PandyaThere is a new provision for dividend that is received by individuals in the current financial year that will put an additional liability on them if the figure here crosses the Rs 10 lakh mark. While the details about these are easy to know it is important to take a look at the manner in which the actual situation on the ground works out. This will enable the process to be completed easily and the investor will not face any worries but it will require that there is proper attention paid to the details. Here is a look at how this new proposal will work in reality.Dividend uncertaintyThe first thing that an individual has to do is to look at whether the additional amount of tax would be applicable to them. There is no certainty on this for the individual investor because the conditions state that this is applicable only when the dividend during the year crosses the Rs 10 lakh mark. Now there is no way in which the investor will actually be able to know whether they would be covered as the dividend declared by companies is not certain. Some might declare a higher dividend or in some cases even a special dividend and this could push the figure up or even the reverse can happen so there has to be a constant record keeping which will show whether the investor is going to come close to or cross the Rs 10 lakh dividend mark during the year.Investor’s responsibilityThe other thing that is very important for the investor is that it is their responsibility to pay the tax and not doing so would result in a demand being raised on them. This is different because as far as dividend is concerned there is little that they have had to worry about. Under the current rules when a company pays a dividend the amount is tax free in the hands of the investor so whatever they receive does not have any tax to be paid on it. There is a dividend distribution tax that is paid by the company but the investor does not have to worry about the rates or other details related to the dividend. This additional tax is not for the company to pay but it is for the individual to pay after they add up all the dividends received during the year so this is something that they would need to watch out for.Actual calculationThe actual working would involve the addition of all the dividends that is received by the individual. This would be the gross figure of the dividend. Thus if a company has declared a dividend of Rs 20 and there are 20,000 shares with the individual then the dividend to be considered would be Rs 4 lakh and so on. If the total figure crosses the Rs 10 lakh mark then a sum of 10 per cent has to be paid as tax. This would be reflected in the tax working and hence if this is not paid then there would be a violation of the advance tax requirements too as this kicks in when a person has to pay Rs 10,000 as tax. Ultimately if the total dividend is say Rs 12 lakh then the tax to be paid comes to Rs 1.2 lakh and so on. This working is important because no dividend should be missed out and this would be known based on the amounts that are received in the bank account of the individual. This will require some effort but the threshold here is high so everyone would not be covered.