Taxation of Dividends

I express appreciation towards the cover story published in the previous issue which provides decent and good quality insights regarding making a conscious decision to invest in dividend-paying companies. No doubt earning dividends along with capital appreciation has provided investors the dual benefits of holding a dividend-paying stock. Can you throw some light regarding taxation of such dividends for the investors? - Rahul K 

Editor Responds: Thank you for the words of appreciation. The dividend is taxable in the hands of investors. The taxability of dividend and tax rate depends upon factors like residential status of the shareholders and the relevant head of income. An investor can deal in securities either as a trader or as an investor. If the shares are held for trading purposes, then the dividend income shall be taxable under the head ‘income from business or profession. However, if the shares are held for the purpose of investment, then income arising in the nature of dividend shall be taxable under the head ‘income from other sources. We hope that we were able to answer your query. Keep writing to us!