Income Tax Calculator-Income From Other Sources: How you are taxed when money derived from mutual fund dividends

Income Tax Rule on mutual fund dividends

Means, the dividends received on mutual funds are taxed as 'Income from other sources' while filing tax returns. Photo: PTI

Dividend is part of individual's income

Speaking on how income tax rule gets applied on mutual fund dividends, SEBI registered tax and investment expert Jitendra Solanki said, "Mutual fund dividends are treated as income from other sources and it gets added into an earning individual's annual income. At the time of Income Tax Return (ITR) filing, the income tax outgo will be decided on the basis of income tax slab in which one will fall after addition of the net annual income and the net mutual fund dividend." Photo: Pixabay

Income tax outgo calculation

Solanki said that if an earning individual's net income plus mutual fund dividends together add up to Rs 2.5 lakh per annum then there will be zero tax liability on the mutual fund dividends. However, in case the earning individual falls in Rs 2.5 lakh to Rs 5 lakh bracket after the addition of one's net annual income plus mutual fund dividends, then the earning individual will have to claim income tax rebate available under Section 87A of the income tax act. Photo: Pixabay

TDS rule on mutual fund dividends

However, SEBI registered tax and investment expert, Manikaran Singhal said that tax deduction at source (TDS) will be applicable on the mutual fund dividends, irrespective of the income tax slab one falls in after addition of net annual income and mutual fund dividend. Photo: Pixabay

Finance Act 2020 on TDS deduction on dividends

"As per the Finance Act 2020, 10 per cent TDS on mutual fund dividends will be applicable if the net mutual fund dividend is more than Rs 5,000. The TDS would apply even in case you have opted for dividend reinvestment scheme as reinvestment of the dividend is treated as receipt of dividend in your income," said Singhal. Photo: Pixabay