Reporting Dividend and Interest Income Correctly Based on AIS
- Farheen Mukadam
- Aug 5
- 9 min read
Dividend and interest income are essential sources of earnings for many individuals, and both are subject to specific tax regulations under Indian tax laws. Understanding how these income sources are taxed, reported, and filed is crucial to ensure that taxpayers comply with the Income Tax Act and avoid any penalties. In addition to the general tax treatment, taxpayers must also navigate the various forms and procedures required to report such income accurately, especially with the introduction of the Annual Information Statement (AIS) for increased transparency. Let us delve into the key aspects of dividend and interest income taxability, the importance of correct reporting, and how to choose the right ITR form for these income sources. We’ll also explore the role of TDS (Tax Deducted at Source) and deductions available when reporting dividend and interest income, and how TaxBuddy can help simplify the process.
Table of Contents
What is AIS and How It Affects Tax Filing
The Annual Information Statement (AIS) is a detailed statement that provides a comprehensive overview of all the financial transactions associated with a taxpayer, including dividends, interest income, and TDS details. AIS is an updated and enhanced version of the Form 26AS, providing taxpayers with more granular information about the transactions reported to the Income Tax Department by various financial institutions. AIS aims to enhance transparency and reduce tax evasion by providing taxpayers with access to information regarding income that has been reported by third parties.
When it comes to filing taxes, AIS plays a crucial role in helping taxpayers identify and match their reported income with what the Income Tax Department has on record. For dividends and interest income, AIS makes it easier to verify the exact amount of income received and any TDS that has been deducted, ensuring the accuracy of the tax return. Failure to report this information accurately can result in mismatches, delayed processing of returns, and potential scrutiny from the tax authorities.
Dividend Income: Taxability and Reporting Guidelines
Dividend income refers to the earnings received by shareholders from the profits of a company in the form of dividends. Under the Income Tax Act, dividend income is taxable in the hands of the shareholder under the head "Income from Other Sources." The taxability of dividend income depends on several factors, such as the amount received and the type of company issuing the dividend.
Taxability: As per the Finance Act 2020, dividend income is taxable at the applicable income tax slab rates of the individual taxpayer. Unlike in the past, where companies paid tax on dividends before distribution, now it is taxed in the hands of the shareholder. Dividends exceeding ₹5,000 per year will be subject to TDS at the rate of 10%.
Reporting: To report dividend income, taxpayers need to include the total amount of dividend received during the financial year in their ITR. This income is reported under “Income from Other Sources” in the ITR form. If the dividend income is from foreign companies or mutual funds, it may also be subject to a different tax treatment based on the Double Taxation Avoidance Agreement (DTAA).
Choosing the Correct ITR Form for Dividend and Interest Income
The selection of the correct ITR form depends on the taxpayer's sources of income. For individuals who receive dividend and interest income, the correct form is typically ITR-1 (for individuals with income up to ₹50 lakhs) or ITR-2 (for individuals with income exceeding ₹50 lakhs or those having income from business or profession).
ITR-1: This form is suitable for salaried individuals, pensioners, and those with income from other sources such as interest and dividend income. It is applicable to individuals whose total income is below ₹50 lakh.
ITR-2: This form is used by individuals who have income from more than one source or have income exceeding ₹50 lakh. It is also used by individuals who own capital assets like property or who are involved in business or profession.
Taxpayers must ensure they are filing the appropriate form to avoid delays and scrutiny from the tax department. The form should include the total dividend income received and any TDS deducted, ensuring proper reporting of this income.
TDS on Dividend and Interest Income: What You Need to Know
Tax Deducted at Source (TDS) is a mechanism where tax is deducted by the payer (such as a company or bank) before paying the income to the taxpayer. TDS on dividend income is deducted at 10% if the dividend exceeds ₹5,000 in a year. For interest income, the TDS rate is 10% for individuals whose interest income from a bank exceeds ₹40,000 in a year (₹50,000 for senior citizens).
It is essential for taxpayers to track the TDS deducted and ensure that the amounts reflect in their AIS and Form 26AS. If TDS has been deducted, it should be claimed as a credit in the ITR, which will reduce the overall tax liability. In case TDS has been deducted in excess, taxpayers can claim a refund during the filing process.
Interest Income: Taxability and Reporting Guidelines
Interest income, whether from savings accounts, fixed deposits, or other sources, is taxable under the head "Income from Other Sources." The tax treatment for interest income depends on the source of income and the total amount received.
Taxability: Interest income is fully taxable, and the rate of tax depends on the individual’s applicable income tax slab. The first ₹10,000 of interest earned from savings accounts is exempt under Section 80TTA, but this exemption does not apply to interest earned on fixed deposits.
Reporting: Taxpayers must report their interest income under "Income from Other Sources" in their ITR form. The total interest earned from all sources should be included in the return, and any TDS deducted on interest income should be claimed as a credit.
Deductions Available for Dividend Income Reporting
While dividend income is taxable under the "Income from Other Sources" head, there are some deductions available to reduce the tax burden. For instance, under Section 80M, individuals or Hindu Undivided Families (HUFs) can claim a deduction for the dividends received from domestic companies, subject to certain conditions. This provision helps to avoid double taxation of dividends at both the corporate and individual levels.
Taxpayers should ensure that they are aware of such provisions and apply them correctly when filing their returns to minimize the taxable amount of dividend income.
How TaxBuddy Helps You Report Dividend & Interest Income Accurately
TaxBuddy is designed to simplify the process of reporting dividend and interest income, ensuring that all the necessary details are accurately captured in the tax return. The platform helps taxpayers select the correct ITR form based on their income sources, ensuring that the right fields are filled out and minimizing the chances of errors. TaxBuddy also ensures that TDS credits are correctly claimed, reducing the chances of discrepancies during tax filing. By automatically matching the information in the AIS and Form 26AS, TaxBuddy ensures that all dividend and interest income is reported in compliance with tax laws.
Conclusion
Reporting dividend and interest income accurately is essential for avoiding penalties and ensuring timely processing of tax refunds. By understanding the taxability and reporting guidelines for these income sources, taxpayers can ensure compliance with the Income Tax Act. Platforms likeTaxBuddy mobile app help simplify this process by offering an easy-to-use interface that ensures accurate filing, maximizes deductions, and minimizes errors. By utilizing the features of TaxBuddy, taxpayers can streamline their tax filing experience and reduce the chances of discrepancies with the Income Tax Department.
Frequently Asked Question (FAQs)
Q1: How should I report dividend income in my ITR?
Dividend income is reported under the "Income from Other Sources" section in the Income Tax Return (ITR) form. All types of dividend income, whether from mutual funds or direct investments in companies, must be declared. It's essential to report the total dividend income received during the financial year. While reporting, ensure that you also account for any TDS that may have been deducted on your dividend income, as this will affect your final tax liability.
Q2: Is TDS deducted on dividend income?
Yes, TDS (Tax Deducted at Source) is applicable on dividend income exceeding ₹5,000 per financial year. The rate of TDS is 10%, provided your PAN is furnished with the company paying the dividend. If TDS has been deducted, it will be reflected in your Form 26AS, which can be used to claim the TDS credit while filing your ITR. Make sure that the TDS amount is correctly reflected in your return to ensure you don’t pay double tax.
Q3: Can I claim deductions for dividend income?
Yes, you can claim deductions on dividend income under Section 80M. This provision allows individuals to claim a deduction for dividends received from domestic companies, thus avoiding double taxation on dividends. It's essential to ensure that the dividend income qualifies under this section and to report it accurately in your ITR to claim the deduction.
Q4: How is interest income from savings accounts taxed?
Interest income from savings accounts is taxable. However, for non-senior citizens, the first ₹10,000 of interest income is exempt under Section 80TTA of the Income Tax Act. For senior citizens, the exemption limit increases to ₹50,000 under Section 80TTB. Any interest income exceeding these thresholds is taxable. Be sure to report the total interest earned from your savings accounts in your ITR and claim the appropriate exemptions.
Q5: Do I need to report interest income from my fixed deposits?
Yes, interest income from fixed deposits (FDs) must be reported under "Income from Other Sources" in your ITR. Unlike savings account interest, FD interest does not qualify for the exemptions provided under Section 80TTA or Section 80TTB. Be sure to report the entire interest income and include any TDS deducted by the bank on the interest earned. This ensures that the correct tax liability is calculated.
Q6: Is dividend income subject to TDS?
Yes, dividend income exceeding ₹5,000 in a financial year is subject to TDS at the rate of 10%. If TDS has been deducted, it will appear in your Form 26AS, and you can claim it as a credit in your ITR. It's important to ensure that the TDS amount is correctly reflected in the return and is deducted at the right rate.
Q7: Can I file my ITR using TaxBuddy if I have both dividend and interest income?
Yes, TaxBuddy allows you to file your ITR even if you have multiple sources of income, including dividend and interest income. The platform simplifies the process by automatically selecting the correct forms for your income types, verifying TDS credits, and ensuring that all income sources are correctly reported. This helps prevent errors and ensures that you maximize your eligible deductions and credits.
Q8: How do I ensure my TDS on dividend income is correctly reported?
To ensure your TDS on dividend income is correctly reported, check your Form 26AS to verify that the TDS deducted by the company is accurately reflected. Cross-check the TDS amount before submitting your ITR, and make sure that the TDS is claimed as a credit in your return. Using platforms like TaxBuddy can help streamline this process by automatically retrieving and verifying TDS details, reducing the chances of errors.
Q9: Are there any specific tax-saving deductions available for dividend income?
Yes, under Section 80M, taxpayers can claim a deduction on dividend income received from domestic companies. This provision helps reduce the overall taxable income by preventing double taxation of dividends. It’s important to correctly report dividend income and ensure that it qualifies for the deduction under Section 80M. Always check the eligibility criteria and ensure your ITR is filed correctly.
Q10: How can TaxBuddy help with interest and dividend income reporting?
TaxBuddy simplifies the process of reporting interest and dividend income by automatically selecting the correct forms and sections for accurate reporting. The platform helps ensure that TDS credits are accurately reflected and claimed, minimizing the chances of errors or omissions. It also helps taxpayers claim relevant exemptions, such as those under Section 80TTA for savings account interest or Section 80M for dividend income, making the tax filing process seamless.
Q11: What should I do if my dividend income is not reflected in Form 26AS?
If your dividend income is not reflected in Form 26AS, you should first contact the company or financial institution that paid the dividend to confirm whether they have reported the TDS deducted. If the issue persists, you may need to follow up with the tax authorities for clarification. In the meantime, you should still report the income in your ITR and ensure that you provide accurate details of the dividend income received.
Q12: Can I file a revised return if I missed reporting dividend or interest income?
Yes, if you missed reporting dividend or interest income in your initial ITR filing, you can file a revised return under Section 139(5) of the Income Tax Act. This allows you to correct any errors or omissions made in the original return. It's essential to file the revised return before the end of the assessment year and ensure that all income sources, including dividend and interest, are accurately reported.
Comments