Received TDS on Dividend Income Below Exemption Limit? Here's How to Claim Your Income Tax Refund

Investing in stocks can be rewarding, especially when you receive dividends. However, many taxpayers are caught off guard when Tax Deducted at Source (TDS) is deducted from their dividend income—even when their total annual income falls below the basic exemption limit. If you’re facing a similar issue, don’t worry. You can still claim a refund by filing your Income Tax Return (ITR). Here's everything you need to know.

Why Is TDS Deducted on Dividend Income?

According to current income tax laws, if an individual earns more than ₹10,000 in dividend income from a single company in a financial year, the company is required to deduct TDS at the applicable rate. This rule applies regardless of the individual's total income.

This means that even if your total income is below the exemption threshold and you're technically not liable to pay any income tax, TDS can still be deducted from your dividend earnings.

Understanding the Basic Exemption Limit

Tax expert Balwant Jain explains that under Section 139 of the Income Tax Act, it is mandatory to file an ITR if your total taxable income (before claiming deductions) exceeds the basic exemption limit.

Here’s the breakdown:

• Old Tax Regime:

  • Individuals below 60 years: ₹2.5 lakh

  • Senior citizens (60–79 years): ₹3 lakh

  • Super senior citizens (80+ years): ₹5 lakh

• New Tax Regime:

  • The basic exemption limit for all age groups is ₹3 lakh

If your income is below these limits, you’re not required to file an ITR—but you may still choose to do so voluntarily. This becomes necessary if you want to claim a refund for the TDS deducted.

Real-Life Example: How Refund Works

Let’s say you earned ₹70,000 as dividend income from listed company shares during the previous financial year, and ₹2,500 was deducted as TDS. If your total annual income falls below the applicable exemption limit, you’re eligible for a refund. However, you must file an ITR to claim this amount back from the Income Tax Department.

Prevent TDS on Future Dividend Income

To avoid unnecessary TDS deductions in the future, taxpayers can submit Form 15G or Form 15H, depending on their age:

• Form 15G: For individuals below 60 years of age

• Form 15H: For individuals aged 60 years and above

These self-declaration forms state that your income is below the taxable limit, and no TDS should be deducted.

Important: You must submit this form separately to each company from which you expect to receive dividends. It’s best to submit it at the beginning of the financial year to avoid any deductions.

Step-by-Step: How to Claim a TDS Refund

Collect TDS certificates (Form 16A) from the companies that paid you dividends.

Verify the TDS amounts through Form 26AS or your Annual Information Statement (AIS) on the income tax portal.

File your ITR using the appropriate ITR form before the deadline.

Ensure your bank account is linked and validated for receiving refunds.

Once processed, the refund will be credited directly to your account by the IT Department.

Final Words

While TDS on dividend income is unavoidable in many cases, understanding your tax obligations and rights as a taxpayer is crucial. If your income is below the exemption limit and TDS has been deducted, filing an ITR is your gateway to reclaiming that money.

Disclaimer: The views expressed by tax experts are their own and not endorsed by this publication. Always consult a certified tax advisor before making any tax-related decisions.