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Taxability of Dividend Income Received for Domestic and Foreign Company

Investing in share and mutual funds are new way of investing as these instruments provide higher rate of return in less time, however it involves high degree of risk but due to high benefit it is attracting various investors.

In these transactions there are two ways of earning profit, one is rate variance of purchase and sale and another is Dividend from companies of which shares has been held by investor.

In this article we will understand the Income from such investment in the form of Dividend.

As per the provisions of Income Tax Act, 1961, the taxability of Dividend income depends upon the type of company of which shares has been held by investors, here type of company means “Domestic Company or Foreign Company”.

If Dividend income received from Domestic Company:

As per sec 10(34), the dividend received from an Indian company by individual/ HUF is exempt from tax as per provisions of the income tax act. However as per the finance act 2016, if the dividend income received from an Indian company is exceeding Rs.10, 00,000/- the same shall be taxable @ 10% as per sec 115BBDA however such dividend income excludes the dividend from mutual funds.

If Dividend income received from Foreign Company:

In case of dividend received from a foreign company total amount received as a dividend will be taxable and exemption u/s 10 (34) is not available in this case of the foreign company as they are not required to pay Dividend Distribution Tax in India. So, the Dividend income received from foreign company is fully taxable.

If Dividend income received from debt and equity mutual funds:

As per the Sec. 10(35) of Income Tax Act, 1961, dividend income received from debt or equity mutual funds will be not taxable and is fully exempt from tax. In addition to the tax paid by investors, the company should pay dividend distribution tax (DDT). The rates vary from each other.