How to Report Dividend Income Correctly in Your ITR and Avoid Scrutiny Notices

Reporting dividend income correctly in your Income Tax Return (ITR) is crucial for ensuring tax compliance and avoiding scrutiny from the tax authorities. Dividend income, particularly in light of recent tax reforms, has specific reporting requirements under the Income Tax Act, 1961. With the rise in investments, especially through equity markets and mutual funds, understanding how to report dividends correctly is essential. This ensures that taxpayers don’t face issues with incorrect reporting, leading to penalties or delays in refunds. Additionally, the Finance Act and the Budget updates often introduce changes in how dividend income is taxed and reported. Let us explore the process of reporting dividend income in your ITR, how to avoid scrutiny notices for incorrect reporting, and highlight the most recent changes that impact dividend reporting for the financial year 2024-25.

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Table of Contents

• Step-by-Step Guide: Reporting Dividend Income in ITR

• How to Avoid Scrutiny Notices for Incorrect Dividend Reporting

• Recent Changes and Budget 2025 Updates

• Conclusion

• FAQs

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Step-by-Step Guide: Reporting Dividend Income in ITR

Reporting dividend income in your ITR may seem straightforward, but it requires attention to detail to avoid discrepancies and ensure accurate filing. Here is a step-by-step guide to help you report dividend income:

• Identify Dividend Income Sources: The first step is to collect all relevant documents, such as Form 16A (for TDS on dividend) or the statement from your bank, which provides details on dividend income received during the year. This includes dividends from stocks, mutual funds, and other equity investments.
  

• Determine Taxability: Under the Income Tax Act, dividends received from Indian companies are taxable in the hands of the shareholder. For FY 2024-25, dividend income is taxable as "income from other sources" under Section 56(2) of the Act. This means the income is added to your total taxable income and taxed according to the applicable income tax slabs.
  

• Access the Correct ITR Form: For individuals, dividend income should be reported in the ITR-1 form (if applicable) under the section titled "Income from Other Sources." If you are a business entity or have a more complex financial setup, you may need to use ITR-3 or ITR-4.
  

• Fill in the Dividend Income: In the ITR form, under the “Income from Other Sources” section, you need to enter the total dividend income received during the financial year. Ensure that you include both dividends from listed and unlisted shares.
  

• TDS on Dividend: If tax has been deducted at source (TDS) on your dividend income (as per the applicable rate under the Income Tax Act), this needs to be reported as well. The TDS can be reflected in Form 26AS or in the documents provided by the companies paying the dividend. Make sure to claim the TDS while filing your return to avoid paying tax on the same amount.
  

• Verification and Submission: After filling in the required details, verify all the entries, especially the TDS amount and the total dividend income. Once everything is accurate, submit your ITR and keep a copy of the acknowledgement for your records.

By following these steps, you will ensure that your dividend income is reported correctly, minimizing the chances of mistakes that could lead to penalties or delays in processing your refund.

How to Avoid Scrutiny Notices for Incorrect Dividend Reporting

While reporting dividend income may seem straightforward, incorrect reporting can trigger scrutiny notices from the Income Tax Department. Here are some tips to avoid issues and ensure smooth filing:

• Match Dividend Income with Form 26AS: Always cross-check your reported dividend income against the details available in Form 26AS, which is the Tax Credit Statement. This form reflects the TDS deducted on your income, including dividends, and ensures that the income you report matches the data provided by the companies paying the dividends. Discrepancies between what you report and the TDS reflected in Form 26AS may raise a red flag.
  

• Report All Dividend Income: Ensure that all dividend income is reported, even if it is from small amounts or from foreign companies. The Income Tax Department requires that all income, regardless of the amount, be reported. Failure to report even small dividend income can lead to penalties and scrutiny notices.
  

• Ensure Correct TDS Deductions: Check whether TDS has been correctly deducted by the company paying the dividend. If TDS is deducted at a higher or lower rate than applicable, the amount reported on your return may not match the TDS recorded by the tax authorities, which can trigger scrutiny. If you believe TDS has been deducted incorrectly, you can contact the payer or adjust the amount when filing your return.
  

• Avoid Reporting Dividends as Capital Gains: Some taxpayers mistakenly report dividend income as capital gains, especially in the case of dividend-paying mutual funds. Dividends are taxed as “income from other sources,” not as capital gains. Ensure you classify dividend income correctly to avoid confusion and potential scrutiny.
  

• Consult a Tax Professional: If you are unsure about the correct way to report dividend income, consulting a tax professional can help you avoid mistakes. They can also guide you on claiming the right deductions, reporting TDS correctly, and ensuring compliance with the latest tax laws.

By following these steps and ensuring proper documentation and reporting, you can minimize the risk of scrutiny and avoid penalties related to incorrect dividend reporting.

Recent Changes and Budget 2025 Updates

The Budget 2025 introduced several updates and clarifications regarding the taxation of dividend income, which will affect the reporting and filing of dividend income for FY 2024-25. Here are the key changes to note:

• Dividend Taxation Changes: In FY 2024-25, dividend income will continue to be taxed in the hands of the shareholders under "Income from Other Sources" at the applicable income tax slabs. However, the government has introduced additional provisions to prevent double taxation on dividend income from foreign sources.
  

• Increased TDS on High Dividend Income: For taxpayers receiving significant dividend income, particularly from foreign companies, there could be an increase in the TDS rate on the dividends received. This is to ensure better tax compliance on high-value income and prevent evasion.
  

• Deductions and Exemptions: The budget has also introduced some clarifications regarding deductions available on dividend income, particularly for taxpayers who invest in specific tax-saving instruments. Certain exemptions or lower rates of TDS are applicable to dividends received from small or medium-sized companies under specific conditions.
  

• Reporting Changes: With the push for digitalization and enhanced compliance, the government has made it mandatory for companies to provide more detailed and accurate reports on the dividends paid to shareholders. These reports must include PAN details of the shareholders, helping the tax department ensure that all income is reported accurately.
  

Taxpayers must stay updated with these changes, as they will directly impact the way dividend income is reported and taxed for the upcoming financial year. It's advisable to consult with a tax professional or use platforms like TaxBuddy to stay compliant with these changes and file your return accurately.

Conclusion

Correctly reporting dividend income in your ITR is essential for staying compliant with tax laws and avoiding scrutiny. By following the right procedures for reporting, understanding the tax implications, and staying updated with the latest changes introduced in the Budget 2025, you can ensure that your dividend income is accurately reported. Ensuring that you match the TDS reflected in Form 26AS with your reported income is a crucial step in avoiding penalties. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience. The app streamlines dividend income reporting by auto-fetching your AIS and Form 26AS, ensuring you file your ITR with confidence and accuracy.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

Yes, TaxBuddy offers both self-filing and expert-assisted plans for ITR filing. If you're confident with your tax knowledge and prefer to handle your filing independently, the self-filing plan provides you with the necessary tools and guidance. On the other hand, if you're looking for professional help to ensure accuracy and compliance, the expert-assisted plan gives you access to experienced tax professionals who will handle your filing for you. This dual approach gives you the flexibility to choose based on your preferences and the complexity of your tax situation.

Q2. Which is the best site to file ITR?

TaxBuddy is one of the best platforms for ITR filing. It simplifies the entire process with user-friendly features, guidance, and a secure filing environment. Whether you are filing on your own or seeking expert assistance, TaxBuddy makes it easier to comply with tax regulations. Other platforms, such as the official Income Tax Department portal, also offer ITR filing services, but TaxBuddy’s additional features like automated error-checking, professional support, and a seamless user experience make it stand out as one of the top choices for taxpayers.

Q3. Where to file an income tax return?

Income tax returns can be filed through the official Income Tax Department portal, which is the government-approved platform. However, platforms like TaxBuddy offer a more streamlined and user-friendly approach, with step-by-step guidance, AI-driven tax filing, and expert assistance if needed. TaxBuddy automatically integrates your Form 26AS and AIS for a hassle-free experience, making it easier for both individuals and businesses to file their taxes accurately.

Q4. Where do I report dividend income in my ITR?

Dividend income should be reported under the section "Income from Other Sources" in the ITR form. This applies to both domestic and foreign dividend income. Ensure that you correctly report the total amount received from dividends during the financial year, as the tax authorities closely monitor dividend income for compliance with TDS and tax obligations.

Q5. What is the TDS threshold for dividend income in FY 2024-25?

For FY 2024-25, TDS is applicable on dividend income if the amount exceeds ₹10,000 in a financial year. If your total dividend income surpasses this threshold, the company paying the dividend will deduct TDS at the applicable rate. This TDS amount will be reflected in your Form 26AS, which should be cross-verified when filing your return.

Q6. Can I claim any deductions against dividend income?

Yes, you can claim a deduction on interest expenses related to dividend income, but this is limited to 20% of the total dividend income you received. This deduction is allowed under Section 57 of the Income Tax Act. Make sure to keep proper documentation for the interest expenses to claim this deduction.

Q7. What happens if my reported dividend does not match AIS or Form 26AS?

If the dividend income you report does not match the information in the Annual Information Statement (AIS) or Form 26AS, it could trigger a scrutiny notice from the Income Tax Department. Mismatches in reported income, especially dividend income, can lead to delays in processing your return, penalties, or further inquiries from the tax authorities. To avoid such issues, always cross-check your dividend income with the data in Form 26AS.

Q8. How can TaxBuddy help with dividend reporting?

TaxBuddy simplifies dividend reporting by automatically fetching your AIS/Form 26AS data. It cross-verifies your reported dividend income with the information available in these government records, minimizing errors and ensuring that your filing is correct. TaxBuddy’s platform ensures that all TDS credits are accounted for, reducing the likelihood of discrepancies and helping you file an accurate return with ease.

Q9. Can I report foreign dividend income in my ITR?

Yes, foreign dividend income must also be reported under the "Income from Other Sources" section of the ITR. Foreign dividend income is subject to tax, and you may also be eligible for a foreign tax credit if the income has been taxed in the country of origin. Make sure to include the details of the foreign dividend income along with any foreign tax paid, and ensure compliance with the relevant provisions under the Income Tax Act.

Q10. What happens if I miss reporting dividend income?

If you miss reporting dividend income in your ITR, it can lead to penalties, notices from the tax authorities, or even higher scrutiny of your return. The Income Tax Department relies heavily on the data provided in Form 26AS and AIS, and failing to report the income accurately can result in mismatches that trigger follow-up actions, such as audits. It’s crucial to ensure that all dividend income is correctly reported to avoid such issues.

Q11. Can I amend my ITR if I mistakenly report dividend income?

Yes, if you have made an error in reporting dividend income, you can file a revised return to correct the mistake. The revised return can be filed anytime before the end of the relevant assessment year. If the mistake is identified after the initial return is processed, you must amend it to avoid penalties and ensure accurate tax reporting. The revised return helps you align the correct income details and rectify any errors in your filing.

Q12. How can I avoid errors in reporting dividend income?

To avoid errors in reporting dividend income, always reconcile the dividend details with your AIS/Form 26AS before filing your return. These forms reflect the income and TDS deducted at source, ensuring that your figures match the records. Using reliable tax platforms like TaxBuddy can significantly reduce the chances of errors. TaxBuddy’s system automatically fetches this data, cross-checks it, and ensures that your reported dividend income is accurate, thereby minimizing the risk of errors and delays.