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What are the provisions relating to Tax on Dividend and Sale of Shares?

mahindra-finance-author

by Mahindra Finance

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July 21, 2023

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2 mins read

The provisions relating to tax on dividend and sale of shares are provided for ready reference of shareholders:

1. No tax is payable by shareholders on dividend. However, the Company is required to pay dividend tax @ 17.647% (grossed up) and surcharge @12% together with education cess @ 2% and secondary higher education cess @ 1%, i.e., 20.36%;

2. As per the Finance Act, 2016, income by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, @ 10%. The taxation of dividend income in excess of `10 lakh is on gross basis and made effective from the assessment year 2017-18.

3. Short Term Capital Gains (STCG) tax is payable in case the shares are sold within 12 months from the date of purchase @ 15% in case of ‘individuals’ together with education cess @ 2% and secondary higher education cess @ 1%; Surcharge @ 15% is payable for income exceeding `1 crore in the case of individuals also.

No Long Term Capital Gains (LTCG) tax is payable on sale of shares through a recognised stock exchange, provided Securities Transaction Tax (STT) has been paid and shares are sold after 12 months from the date of purchase. In any other case, lower of the following is payable as long term capital gain tax:

a) 20% of the capital gain computed after substituting ‘cost of acquisition’ with ‘indexed cost of acquisition’ together with education cess @ 2% and secondary higher education cess @ 1% in the case of ‘individuals’. Surcharge @ 15 %is payable for income exceeding `1 crore in the case of individuals also.

b) 10% of the capital gain computed without substituting ‘cost of acquisition’ with ‘indexed cost of acquisition’ together with education cess @ 2% and secondary higher education cess @ 1% in the case of ‘individuals’. Surcharge @ 15 % is payable for income exceeding `1 crore in the case of individuals also.

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