Taxation of Dividends Brings in the Rigmarole of Submitting Form 15G and 15H
Readers would be aware that Yashwant Sinha in his capacity as finance minister had, in 2003, brought about a sea change in the taxation of dividend income. In the Budget of 2003, he had done away with taxation of dividend in the hands of the shareholders or unitholders and instead transferred the onus of payment of tax to the companies and mutual funds. Over the years, there were several changes in this scheme of taxation. But the fundamental principle remained constant i.e., recipient of dividend was not required to pay tax on it but the company or mutual fund declaring the dividend was required to pay a dividend distribution tax (DDT). 
 
This law was applicable from FY03-04 (assessment year 04-05) to FY19-20 (assessment year 20-21). In the Budget of 2020, the current finance minister has restored the old position that was in existence before FY03-04. Thus, now, with effect from FY20-21, dividend income would once again be taxable in the hands of the recipients and no DDT would be payable by the company or mutual fund. 
 
It may be noted that in the past when dividend was taxable in the hands of the recipients, we had Section 80L under which a deduction was available to the shareholder of up to Rs12,000 per year for the dividend income. Unfortunately, now, even though dividend has been made taxable, section 80L or its equivalent have not been brought onto the statute. So, effectively, the entire dividend income would be taxable now without any deduction of the type that was available prior to 1 April 2003.
 
The taxation of dividend in the hands of the shareholders and unitholders has given rise to another compliance burden for some taxpayers and, of course, for the companies and mutual funds—that of tax deducted at source (TDS).
 
TDS or tax deduction at source is mandatory for most types of payments. Dividend will also attract TDS. There is an existing section in the Income-tax Act—Section 194, which applies to TDS from dividend on shares. As per this section, the company which declares dividend is required to deduct TDS from the dividend @ 10%. 
 
Apart from the actual tax, the company would also need to deduct surcharge wherever applicable. In the same way, a newSection—194K—has been introduced into the Income-tax Act under which mutual funds have to deduct TDS @ 10%. 
 
While this 10% is the standard rate of deduction, with a view to alleviate the hardship caused by COVID-19, the government has, across the board, reduced the TDS rates by 25% of the normal rates. Therefore, the actual rate of TDS for FY20-21 will be 7.50% instead of 10%. Of course, if you don’t have a PAN then the rate would be 20%.
 
For individuals, there is one concession – the TDS is to be deducted only if the total dividend expected to be distributed or paid to a shareholder by that particular company or mutual fund is likely to exceed Rs5,000 in the year (April to March). Thus, for example, if a person has shares of, say, Tata Chemicals and if the total dividend that is likely to be paid by Tata Chemicals to that shareholder in the whole year is not expected to be more than Rs5,000, then Tata Chemicals need not deduct any TDS for that shareholder.
 
Now, as far as senior citizens or retired persons are concerned, it is possible that the total income even after including dividend income will not exceed the threshold limit. In such cases, if the company that is paying the dividend deducts TDS then it would unnecessarily block the much required funds of that person and he or she would need to claim a refund from the income-tax department. 
 
To avoid such a problem, the Income-tax Act provides a facility to such taxpayers to avoid TDS by submitting Form 15G or Form 15H to the company or mutual fund in advance (at the beginning of the year) and thereby authorize the said company or mutual fund to not deduct TDS in that year. 
 
Form 15H is applicable to senior citizens (which term is defined to mean any person who is more than 60 years of age) with no taxable income. This form can be submitted by any senior citizen who expects his tax liability for that year to be NIL. Thus, what the senior citizen has to do at the beginning of the year is to estimate the gross income for the year, reduce the deductions, if any, compute the tax liability and reduce the rebate if any, and then, if there is nothing payable, he/she can fill up Form 15H and submit to the company or mutual fund from whom income is expected during the year.
 
On the other hand, Form 15G can be filed by a non-senior citizen who expects his tax liability for that year to be NIL.
 
Now, the problem that most people will face this year (and every year thereafter) is that they will have to file Form 15G/15H with every single company or mutual fund where they hold shares or units if they don’t want a TDS from the dividend income. 
 
This is a major compliance burden on the share or unitholders especially in those cases where there a large number of companies or mutual funds in which the taxpayer holds investments. Most people would have, by now, got emails from many companies and mutual funds asking them to fill up Form 15G/15H. Most such mails would have asked the share or unit holder to submit the form to the registrar & transfer agent (RTA) of the company or mutual fund. 
 
Would it not be simple if a shareholder or unit-holder could submit just one common form to the RTA or some other agency and thereby get the exemption from TDS from dividend from all companies or mutual funds in which he/she holds investments? 
 
Yes, it would. 
 
But unfortunately, that is not possible. This is because the liability to deduct TDS is on each company or mutual fund. Also, the way the Income-tax Act  and rules are drafted, it is mandatory for each company or mutual fund to obtain a separate Form 15G or 15H from the concerned share or unit-holder. 
 
Each such company or mutual fund has multiple responsibilities with respect to the forms so received by it from the share or unit-holders. So, now, those who wish to avoid TDS from their dividend income will have to go through the rigmarole of submitting the Form 15G/15H to each company or mutual fund from which dividend income in excess of Rs5,000 is expected during the year.
 
 (Ameet Patel is a practising chartered accountant who qualified in 1986 and as a rank holder at the Inter and Final CA examinations. He is the ex-president of the Bombay Chartered Accountants' Society (BCAS), a voluntary body of Chartered Accountants. Mr Patel has co-authored two publications published by the BCAS. Currently, he is a partner at Manohar Chowdhry & Associates.)
 
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    COMMENTS

    soundararajanmk

    4 months ago

    It is absurd on the part of Finance Ministry to have initiated this system by insisting upon the burden on the tax payer as enormous workload is thus created all round increasing paper work to individuals, the firm's and the IT dept. in the submission of 15H/15G forms, deduction and refund of tax through TD S system. Penny wise pound foolish. We need a well experienced and competent F.M.

    prasanna

    4 months ago

    Ameet, the more problematic issue is if the Company or its RTA claims that they do not have the PAN, then TDS is at 20% and the shareholder will not get the credit because in Form 26Q filed by the Co. this will shown against no PAN.

    REPLY

    lcrossroad

    In Reply to prasanna 4 months ago

    I understand that now a days without pan demat account is not opened as well as mf investment done
    As far as no pan is available this must be those investors who must be holding in physical form where the company must not be listed or the holding must be in single name or the holder must have expired and not transferred or dematted

    Ramesh Popat

    4 months ago

    I m sure govt can easily allow Cams fir example, to collect 15H
    for all MFs. it may be a blessing in disguise!
    ML can very well take up the issue please. and most likely, it may
    get success.

    shetyerb

    4 months ago

    Instead of simplifying, theTaxation is being made more Complex and Cumbersome, especially the weakest layer of People.

    evishwanathan

    4 months ago

    How many form 15H one will file every year? I will be 80 years old next year. I find it bothersome filing 15H forms to banks every year. Now I have to file ti 15 different companies every year. The government has not consideration for the senior citizens. This dividend tax on individuals should be scrapped. The government can very well capture the dividend income in form 26AS along with other receipts of tax payers.

    REPLY

    shetyerb

    In Reply to evishwanathan 4 months ago

    The Lady, Nirmala is only an Economist and that too only by Qualification. Economics and Financial matters are quite different from each other. The earlier Finance Minister was a regular Lawyer in Delhi Courts. Wonder who will be the next.

    PRADEEP BHAT

    In Reply to shetyerb 4 months ago

    disappointed with policies

    danny23

    4 months ago

    I wish somebody would collate all the taxes that this government has re-introduced like long term capital gains on equity, dividend tax, buyback tax etc. All have made investing more difficult for the common man and that lack of savings and investments has a terrible impact at times like these. Too many examples of people with hardly any savings now losing their jobs/business. The other list would be of daily suicides but that is so depressing, I shudder to even think about it. Ache din!

    REPLY

    lcrossroad

    In Reply to danny23 4 months ago

    yes even the rate of interest is so low that people wonder where to invest, even secured ncds are not secured any more( dhfl, rel.home fin.) are examples.
    Will the FM give some solution to this by asking sebi.
    what about investors who have invested in FDs of reputed companies at one time and now they are chasing for the principal refund. Will Fm follow this

    suketu

    4 months ago

    6 yrs ago we were told big stories of "ease of business"!

    parimalshah1

    4 months ago

    The bird brained idea of bureaucrats!
    Why not simply say up to 2.5 or 3 lakh dividend per year in total NO TAX, so no need for form 15 G or 15 H at all!
    Income up to that amount is any way NOT taxable.
    Or have only one form to be submitted to DP like we do for dividend credit? Make use of technology and automation. The curious ways of IAS guys is unfathomable.

    REPLY

    m.prabhu.shankar

    In Reply to parimalshah1 4 months ago

    If political leadership cannot guide the bureaucrats for some reason then better that political leadership resign and get lost. Since 2014, this is one of the problems that this country is facing. Anything negative happens then blame the bureaucrats. Anything positive, credit will go to political masters. Strange.

    lcrossroad

    4 months ago

    What will happen if the company receives form 15g//h after the dividend is paid net of tax
    Not everyone is having printer at home so senior citizens most affected

    muralidhard2002

    4 months ago

    hcl tech insists for 15G/H, even if the dividend payable is less thanRs.5000/-. Have to send the signed originals to the RTA by Courier/Regd Post within the stipulated date (irrespective of the delay due to covid) -another exercise- thanks to this Govt! 80L forgotten!! One more thanks to this Govt!!!

    Newme

    4 months ago

    So much paper work. What a waste of Indians time and energy.
    Mr.Yashwant Sinha where are you? We are stuck with this pickles lady.

    REPLY

    rajagopalsridhar

    In Reply to Newme 4 months ago

    She may not be aware of the implications. This happens when you sign on the dotted lines as suggested by the beuracrat. Better let TDS be deducted. File your ROI and wait for refund. The Act should be amended to ensure refunds in the case of senior citizens are done within 2 months of filing the Return of income.

    lcrossroad

    In Reply to rajagopalsridhar 4 months ago

    refunds are processed quickly by this govt, but what about persons who do not have taxable income and do not file the returns, at least the FM should have taken care of such matters before taking the decisions.

    lcrossroad

    In Reply to Newme 4 months ago

    Lots of paperwork senior citizens are going to go thru tough time instead of simplifying taxation rules fm is making it more complicated also note previous fm late Shri Jaitely ji complicated by grandfathering LTCG. till 1lac

    aarvi1948

    In Reply to lcrossroad 2 weeks ago

    Who is bothered. After the senior cittizen are considered a drain on economy as they do not contribute towards GDP.

    E-invoicing of GST compulsory from Oct 1, with higher threshold
    The government proposes to roll out compulsory e-invoicing of GST from October 1, but has decided to raise the threshold to exempt smaller entities from this compliance, an official said on Thursday.
     
    Accordingly, e-invoicing will be mandatory only for businesses with turnover of Rs 500 crore or more. Those, on the other side of the threshold, will be exempted from the compliance burden, for the time being.
     
    The threshold for mandatory e-invoicing -- a step to improve tax compliance -- was earlier planned to be kept at Rs 100 crore. But, the changes are now being made on the recommendations of an empowered panel of the Goods and Services Tax (GST) Council.
     
    The GST implementation committee, that takes decisions on behalf of the Council when urgent steps are needed, recommended on Wednesday that the Central Board of Indirect Taxes and Customs (CBIC) can keep October 1 as the date for implementing e-invoicing but with a higher threshold, said Principal Commissioner, GST Policy, Yogendra Garg.
     
    "The QR codes are definitely not happening on October 1 but the e-invoice scheme and 500 crore turnover related notification should be out by next week and the industry can start working on it as everything is ready," he said at an ASSOCHAM e-Conclave on 3 years of GST.
     
    Garg also said that the CBIC would improve the existing GST return filing system instead of rolling out a new model.
     
    "Simultaneously, we are going to notify a new scheme as well because there were some issues - export invoice and e-way bill related parameters were not there. So some of those changes are going to be notified soon," he added.
     
    Stressing that the government's endeavour is to make life simpler for the taxpayer and it has been reactive and sensitive to trade requirements, he said: "There are challenges ahead but rest assured, the whole idea is to keep it as simple as possible and focus is on improving compliance mechanism, make it further simple and bring the costs down."
     
    Garg, however, lamented the lack of interaction with industry and urged to keep communication channels open so that the policy wing keeps getting to know as to what is required and expected.
     
    "The problems, issues and challenges come to us very, very late and not on a regular basis. If there is regular communication, that will keep us updated on what are the requirements from the industry," he said.
     
    Pratik Jain, Chairman, ASSOCHAM National Council on Indirect Taxes suggested that a white paper should be bought on the kind of the GST India needs in next three to five years that clearly spells out a roadmap bringing uncovered sectors into the indirect tax fold. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User 

    COMMENTS

    m.prabhu.shankar

    4 months ago

    "Garg, however, lamented the lack of interaction with industry" - Industry should reach out to Govt or Govt should reach out to Industry ? Only during election time political parties reach out to everyone saying they will do everything that everyone requires. Once it wins and forms the Government then people who voted them should stand in line and reach out to them to get the basic works done by them. This mindset needs to be changed.

    Taxpayers to get full details of transactions in Form 26AS
    In a bid to prevent suppression of information by taxpayers, the income tax department will provide full details of their financial transactions such as sale and purchase of stocks, real estate transactions, payment details of credit card bills in the form of statement in the new Form 26AS.
     
    The taxpayers tax passbook or the form 26AS contains details of taxpayer and compliance details along with other financial transactions. From this year, it's format has been changed to include specified financial transactions of taxpayers that will be presented on the form of Statement of Financial Transactions (SFTs).
     
    These will include buying and selling of shares, real estate etc, making cash payments for purchase of bank drafts, pre-paid instruments by the Reserve Bank of India (such as mobile wallets), cash deposits in a financial year, payment of credit card bills (both cash or and other modes). Taxpayers' other details such as Aadhaar number, date of birth, mobile number, email ID and address will also be present in the new form.
     
    A finance ministry statement said that the new Form 26AS is the faceless hand-holding of the taxpayers to e-file their income tax returns quickly and correctly.
     
    "...the information being received by the Income Tax Department from the filers of these specified SFTs is now being shown in Part E of Form 26AS to facilitate voluntary compliance, tax accountability and ease of e-filing of returns so that the same can be used by the taxpayer to file her or his income tax return (ITR) by calculating the correct tax liability in a feel-good environment. This would also bring in further transparency and accountability in the tax administration," the statement read.
     
    The earlier Form 26AS used to give information regarding tax deducted at source and tax collected at source relating to a PAN, besides certain additional information including details of other taxes paid, refunds and TDS defaults. But now, it will have SFTs to help the taxpayers recall all their major financial transactions so that they have a ready reckoner to enable them while filing the ITR.
     
    The income tax department used to receive information like cash deposit/withdrawal from saving bank accounts, sale/purchase of immovable property, time deposits, credit card payments, purchase of shares, debentures, foreign currency, mutual funds, buy back of shares, cash payment for goods and services, etc under Section 285BA of Income-tax Act, 1961 from "specified persons" like banks, mutual funds, institutions issuing bonds and registrars or sub-registrars etc, with regard to individuals having high-value financial transactions since the Financial Year 2016 onwards. Now, all such information under different SFTs will be shown in the new Form 26AS.
     
    The new Form 26AS would also have information of transactions which used to be received up to Financial Year 2015-16 in the Annual Information Returns (AIR).
     
    However, financial transactions will be shown in 26AS only if taxpayers cross the specified limit in a financial year. For instance, if the aggregate credit card bill paid via electronic modes (not including the cash payment) exceeds Rs 10 lakh, then payment of credit card bill will be reflected in Form 26AS. Similarly, if the mutual fund investments in a financial year exceeds Rs 10 lakh, only then such transactions will be reflected in the Form 26AS.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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