Want to avoid paying TDS on dividend income? Here's what you must know

To avoid TDS on dividends: use Form 15G/15H for income below threshold, opt for the new tax regime, invest in growth funds, and explore alternative investments.

Worried about paying TDS on your dividend income

Before the Finance Act of 2020, taxpayers were exempted from paying Tax Deducted at Source (TDS) on dividend income. However, the present taxation system collects TDS directly from investors. In simpler terms, under Section 194, if your total dividend income for a particular financial year exceeds Rs. 5000, 10% TDS is collected on the earned dividend income. Many investors seek ways to avoid or minimise this deduction to maximise their overall earnings. Let's delve into some ways to avoid it!


  • The Finance Act of 2020 withdrew the Dividend Distribution Tax (DDT).
  • Form 15G and Form 15H can be submitted only by resident taxpayers.
  • PAN should be submitted to the financial institution to avoid excess taxation.
  • Taxpayers can opt for the new tax regime to claim an increased basic exemption limit.

All about Form 15G/15H

If your estimated income for a particular financial year is under the taxable threshold, then you can submit Form 15G (aged below 60 years)/15H (for senior citizens) to your financial institution. This form informs that the net yearly income is under the taxable threshold, thereby exemption should be made for TDS collection.

You should remember, only Indian residents are allowed to submit these forms which are valid for the current financial year only.

Also Read: Mistakes in your ITR? This is why you must not delay verification!

Saving TDS by investing in other instruments

Instead of dividend-paying stocks or mutual funds, you can always consider investing in tax-free bonds, ELSS, PPF, NPF, etc.

Opt for the new tax regime

Taxpayers can opt for the new tax regime that has a basic exemption limit of 3 lakhs compared to 2.5 lakhs in the old one.

Filing an ITR

If your dividend income exceeds the Rs. 5000 limits but your income for the financial year is below the taxable limit, mention the excess tax paid while filing an ITR to claim a refund against it.

Also Read: What is tax loss harvesting?

Opt for growth funds

Growth mutual funds re-invest the profit amount and no dividends are remitted, which helps increase the Net Asset Value (NAV). Your capital gains will be taxed only when you redeem them.

Parting thoughts

The tips mentioned above can be used efficiently to earn tax-free dividend income. Additionally, submitting PAN card details to your financial institution will make sure that TDS is deducted as per your tax bracket.

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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.


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