How do income tax rules apply to dividend-paying stocks, bonus shares, buybacks?

according to tax and Investment According to experts, interim dividend or final dividend is an additional income of the stock market investor and it comes into one’s account without selling the portfolio stock. Hence, it is considered as an additional income of the investors and hence it is added to one’s annual income at the time of filing Income Tax Return (ITR) and income tax is levied as per the income tax slab in which the taxpayer falls after adding these. Dividends along with one’s annual income. However, in the case of buy back of shares, income tax is being paid by the company declaring buyback, while the shareholder is not required to pay any income tax.

Income Tax Calculator: How Bonus Shares Are Taxed

On how income tax rules apply on sale of bonus shares, Sujit Bangar, Founder, Taxbuddy.com said, “Bonus shares are issued by the company to the existing shareholders in proportion to their existing shares. No tax applicable at the time of allotment Number of Bonus Shares. This is one of the benefits of issue of Bonus Shares. The holding period for Bonus Shares is calculated from the date of allotment of Bonus Shares to the date of sale. Bonus Shares at the time of sale The tax is applicable as it is applicable to other shares.”

On income tax computation while selling bonus shares, Mumbai-based tax and investment expert Balwant Jain said, “If the bonus shares are issued before January 31, 2018, then in that case, the cost of the bonus share will be the closing price of the stock as on January 31, 2018.” Co. If the bonus shares are issued after January 31, 2018, the cost of the bonus shares shall be nil.”

Balwant Jain said that income tax on sale of bonus shares is calculated on FIFO (First In First Out) basis. If the bonus share is sold after holding it for more than one year, in that case, the bonus share beneficiary will have to pay 10 per cent tax on the excess profit. 1 lakh that the shareholder has earned from the issue of bonus shares.”

How Interim/Final Dividend is Taxed

On income tax rules applicable on interim or final dividend received by a shareholder, SEBI registered tax and investment expert Jitendra Solanki said, “The interim or final dividend is credited to the shareholders’ account without selling the portfolio stock. Therefore, at the time of ITR filingDividend income is added to one’s annual income and taxed as per the income tax slab applicable to the taxpayer.”

Income tax rule applicable on buyback of shares

“As per section 115QA of the IT Act, any domestic company which buys back its shares is liable to make additional payment. Income tax 23.296 on distributed income at an effective tax rate (including 12% surcharge and 4% health and education cess). Buyback tax will be paid within 14 days from the date of payment of consideration. If fails to make the payment within the stipulated time, 1% simple interest will be levied,” said Sujit Bangar of Taxbuddy.com, “Tax in capital gains arising from buyback as per section 10(34A) of the IT Act.” will be exempted from shareholder’s hands.