Understanding Taxation of Dividends from Shares and Mutual Funds

Mutual Funds

Understanding Taxation of Dividends from Shares and Mutual Funds

Mutual Funds

As the deadline for filing income tax returns approaches, clarity on the taxation of dividends received from investments in shares and mutual funds becomes crucial. The rules surrounding dividend taxation underwent significant changes with the Finance Act, 2020, which abolished the Dividend Distribution Tax (DDT).

Previous Tax Regime vs. Current Scenario

Previously, dividends were exempt from tax in the hands of shareholders and unit holders because companies and mutual funds paid DDT before distributing dividends. However, under the current regime:

  • Dividends received from domestic companies and mutual funds are taxable in the hands of recipients.
  • Dividend income should be reported under the ‘Income from other sources’ in the Income Tax return (ITR).
  • Individuals, Hindu Undivided Families (HUFs), and firms are liable to pay tax on dividends based on their applicable income tax slab rates.

Tax Calculation and Deductions

When calculating tax on dividend income:

  • A deduction of up to 20% of the gross dividend income is allowed for interest expenses incurred to earn such dividends.
  • Other expenses like commission or banker’s remuneration cannot be claimed as deductions.
Mutual Funds

Tax Deducted at Source (TDS)

  • A TDS of 10% applies to dividend income exceeding Rs 5,000 in a financial year.
  • For example, if an individual receives Rs 15,000 in dividends, TDS will be applicable on Rs 10,000 (10% of the amount exceeding Rs 5,000).
  • This TDS can be adjusted against the total tax liability at the time of filing the ITR.

Foreign Dividend Income

  • Dividends received from foreign companies are taxed when received by the investor.
  • Investors have the option to be taxed at a flat rate of 20%, including applicable charges, or at their income tax slab rate.

Mutual Fund Dividends

  • Equity mutual fund dividends are tax-free in the hands of investors, as the mutual fund itself deducts a Dividend Distribution Tax (DDT) before distributing dividends.
  • Debt mutual fund dividends are subject to DDT at a rate of 25%.

Important Considerations

  • Proper disclosure of dividend income in the ITR is crucial to avoid penalties.
  • Investors should stay informed about current tax norms and plan investments accordingly.

Understanding these tax implications ensures that investors can effectively manage their tax liabilities while optimizing their investment returns. For personalized advice, consulting a tax professional is recommended.

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The Importance of Verifying Your Income Tax Return

Income Tax Return

The Importance of Verifying Your Income Tax Return

Income Tax Return

Filing your Income Tax Return (ITR) is just the first step in the tax process. To ensure your return is valid, you must electronically verify it within a specific timeframe, usually 30 days, as mandated by the Income Tax Department. Verification can be done via Aadhaar OTP, net banking, or by submitting a physical ITR-V form.

The Significance of ITR Verification

After filing your ITR, you must verify it for it to be considered valid. Verification is crucial because:

  1. Legal Requirement: Your return will not be processed by the Income Tax Department without verification.
  2. Timely Processing: Delays in verification can lead to penalties, notices, and delayed refunds.
  3. Confirmation of Submission: Verification completes the filing process, ensuring your return is officially received and under review.

 

Income Tax Return

Why Online Verification is Preferred

Online verification is the preferred method for many taxpayers due to its convenience and efficiency. Here are key reasons to choose online verification:

Speed

  • Instant Verification: Online methods like Aadhaar OTP or Electronic Verification Code (EVC) verify your return instantly, unlike the physical ITR-V form which involves postal delays.

Simplicity

  • No Paperwork: Online verification eliminates the need for printing, signing, and mailing forms, promoting an eco-friendly filing process.
  • User-Friendly: The process is straightforward and can be completed from the comfort of your home.

Common Online Verification Methods

There are several online verification options available, each catering to different preferences:

  1. Aadhaar OTP:

    • Requires PAN, Acknowledgement number, and a registered Aadhaar linked to a mobile number.
    • An OTP is sent to your registered mobile for verification.
  2. Electronic Verification Code (EVC):

    • Pre-validated Bank Account: Generate an EVC through your bank’s online portal if your bank account is already validated on the income tax portal.
    • Pre-validated Demat Account: Similar to bank accounts, a pre-validated demat account can also generate an EVC.
    • ATM: Some banks offer the option to generate EVCs through ATMs.
Income Tax Return

Revised Timeframe for Verification

The Central Board of Direct Taxes (CBDT) has revised the verification period from 120 days to 30 days from the date of return submission. This change emphasizes the importance of promptly verifying your ITR to avoid processing delays, penalties, or tax liabilities.

Read More: 

Revised Timeframe for Verification

Online ITR verification is a swift, secure, and efficient method to finalize your tax return. It ensures your return is valid and helps avoid any potential delays or penalties. To comply with the shortened 30-day deadline, prioritize online verification immediately after filing your ITR. Whether you use Aadhaar OTP, EVC, or net banking, ensure your details are ready to streamline the process.

Verifying your ITR promptly offers peace of mind and ensures a smooth processing phase. Don’t wait until the last minute—choose the verification method that suits you best and complete your ITR filing process seamlessly.

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How to Check Income Tax Refund Status for 2023-24

Income Tax Refund

How to Check Income Tax Refund Status for 2023-24

Income Tax Refund

As the deadline for filing income tax returns for the financial year 2023-24 approaches on July 31, many taxpayers are eagerly awaiting refunds on excess taxes paid. If you’ve already filed and verified your returns, you can easily monitor the status of your refund through the Income Tax Department’s e-filing portal.

Steps to Check Your Refund Status

1. Visit the E-filing Portal

    • Go to the official income tax e-filing website: incometax.gov.in.
    • Log in using your credentials.
 

2. Navigate to ‘View Filed Returns’

    • Click on the ‘e-file’ tab.
    • Select ‘View filed returns’.
Income Tax Refund
 

3. View Return Details

    • Your filed returns will be displayed.
    • Click on ‘View details’ to see the history and current status of your returns.

4. Check Refund Status

  • If your refund has been issued, details such as the mode of payment, refund amount, and date of clearance will be shown.

Possible Refund Scenarios

  • Partial Refund Adjustments

    • If part of your refund is adjusted against any taxes due, the status will read: ‘Processed and partially refund adjusted’.
 
  • Full Refund Adjustment

    • If the entire refund amount is adjusted against tax dues, the status will be: ‘Processed and full amount adjusted’.
 
  • Refund Rejection or Failure

    • If your refund claim is rejected or there is a failure in crediting the refund to your bank account, the website will display the date and reasons for the failure. For instance, if your PAN is not linked to Aadhaar, an alert will prompt you to complete the linking process and pay the penalty fee under section 234H (Rs 1,000).

Identifying Causes of Refund Failure

  • Several factors can cause refund processing failures:

    1. Bank Account Not Pre-validated

      • Ensure your bank account is pre-validated, as this is a mandatory step.
    2. Mismatch in Bank and PAN Details

      • The name on your bank account must match the name on your PAN. Discrepancies can lead to refund rejection.
    3. Incorrect Bank Details

      • Double-check that you’ve entered the correct IFSC code and ensure the selected bank account is active. Closed or invalid accounts will delay the refund process.

By following these steps and ensuring all your details are correct and up-to-date, you can efficiently monitor your income tax refund status and address any issues promptly.

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