Income tax: Declare dividend income in tax returns

By: | Published: November 2, 2016 6:37 AM

Dividend from foreign companies are taxable and there is no exemption available as per the Indian tax laws.

Should I declare dividend income from shares and mutual funds while filing tax returns as a self-employed person?—Govind Krishnan

Dividend from foreign companies are taxable and there is no exemption available as per the Indian tax laws. Dividend from Indian companies are exempt from tax as the companies are liable to pay Dividend Distribution Tax (DDT). However, with effect from 2016-17, individuals qualifying as residents who receive dividends of over R10 lakh per year will be liable to pay dividend tax at the rate of 10% (in addition to DDT paid by the company). Dividend from mutual funds are tax exempt in the hands of individuals. One should declare the dividend income in his return of income irrespective of whether it is taxable or exempt. Also, the treatment of dividend income would not differ in the case of a self-employed individual.

I am a salaried individual having a minor daughter. From the tax planning perspective, should I opt for “Specific beneficiary trust” (private trust) or HUF? Which option shall provide me and my daughter safety and security legally and financially in the long term?—Rahul Singh

Both the options have their own merits and demerits. Income of a private specific trust, not having any business income, is assessed in the hands of the trustee(s), as a representative assessee. HUF is taxed as a separate entity and income of HUF is taxed at the normal slab rates. An author of the trust has the freedom to decide on the beneficiaries, whereas HUF should have members as governed by the Hindu laws. Trust arrangement has the advantage of choosing a non-family member as the trustee as compared to HUF, where the senior most family member would be the karta of the HUF.

The writer is tax partner and India Mobility Leader, EY

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