Surcharge on Dividend Income of Resident Individual-AY 21-22

 

Finance Act 2019 introduced the enhanced surcharge on Individuals (Resident or Non-resident), ranges from 10% to 37%, and through other amendments, the surcharge on Capital Gains taxable u/s 111A and 112A was restricted to 15%. In view of distinct rate of taxation of capital gains taxable u/s 111A and 112A, the separate surcharge amount can be computed on

a)      Capital gains taxable u/s 111A & 112A and

 

b)      Income, other than such Capital Gains.

 

Finance Act 2020, inter-alia, makes following amendments, as applicable for Assessment year 2021-22:-

 

a)      Dividend is made fully taxable in the hands of shareholders,

 

b)      Surcharge on Dividend income received by an Individual shareholders (Resident or Non- resident) is restricted to 15%.

c)       The taxation rate of dividend on Non-resident Individual will be 20%, as per section 115A

 

d)      In case of Resident Individual, the dividend income will be part of total Income and will be taxable as per applicable slabs

 

The Surcharge mechanism as applicable to Individual (Resident or Non-resident) is summarized as under:-

Total Income	Total Income level –Nature		Surcharge Rate on Tax.
	Income other than Capital Gain (Taxable u/s 111A & 112A) or Dividend	Capital            Gain (Taxable                            u/s 111A & 112A)  or Dividend	Tax on Income other                          than Capital            Gain (Taxable                            u/s 111A & 112A)  or Dividend	Tax on Capital Gain (Taxable u/s 111A & 112A) or Dividend
Exceeding 50 lacs but up to Rs. 1 Cr	Any Nature or level of Income		10%	10%
Exceeding 1 Cr but up to Rs. 2 Cr	Any Nature or level of Income		15%	15%
Exceeding 2 Cr but up to Rs. 5 Cr	Exceeding Rs 2 Cr but upto 5 Cr	NIL	25%
	Exceeding Rs 2 Cr but upto 5 Cr	2 Cr or less/ Exceeding Rs 2 Cr but upto 5 Cr	25%	15%
	2 Cr or less	Exceeding Rs 2 Cr but upto 5 Cr	15%	15%
Exceeding Rs 5 Cr	Exceeding Rs. 5 Cr	NIL	37%
	Exceeding Rs. 5 Cr	5 Cr or less/ Exceeding Rs. 5 Cr	37%	15%
	5 Cr or less but more than 2 Cr	Exceeding Rs. 5 Cr	25%	15%
	2 Cr or less	Exceeding Rs. 5 Cr	15%	15%

 

Issue:- How to compute Surcharge on Dividend Income, when total income exceeds Rs. 2 Cr, taking following data as an example

a)      Other Income – 250 lacs

b)      Dividend Income – Rs. 10 lacs

c)       Total Income – Rs. 260 lacs

 

Non-Resident - No issue involved explained as under

S.No.	Particulars	Normal Tax	Surcharge
1.	Other Income (Assuming Individual has not opted for Section 115BAC) and applicable surcharge rate is 25%, as total income exceeds Rs. 2 Cr	73,12,500	18,28,125
2.	Dividend taxable @ 20% and surcharge @ 15%.	2,00,000	30,000
3.	TOTAL TAX	75,12,500	18,58,125

 

Resident – There is no clarification on how to compute separate tax on dividend, as for resident individual there is no special taxation rate, as in case of Non-resident

There could be following options to compute Tax on Dividend and surcharge thereon.

S.No.	Particulars	Normal Tax	Surcharge
1.	Total Income- Rs. 260 lacs (Assuming Individual has not opted for Section 115BAC)	76,12,500
2.	Less:    Tax     on     Dividend    (either    of following options)
a)	Tax on Dividend on Average basis (10/260 * 76,12,500)	2,92,788	43,918
b)	Tax on Dividend @ 30%	3,00,000	45,000
c)	Tax on dividend (assuming that out total income of Rs. 260 lacs, First Rs. 10 lacs are dividend). Tax on 10 lacs income is Rs. 1,12,500.	1,12,500	16,875
3.	Surcharge on Income, other than dividend, will be @ 25% on tax amount, which remains after excluding tax on dividend

 

Assessee will be most benefited when tax on dividend, in the instant case, is levied @ 30%. I hope Government will provide Clarification on above aspect in due course.