INCOME TAX

Finance Act, 2002 - Threshold limits for deduction of tax at source from income by way of dividends and income from units

Circular : No. 6/2002, dated 2-8-2002.

1. The Finance Minister in his Speech in the Lok Sabha on 31-7-2002, made the following announcement :

Dividend Income from shares of Indian companies and income from units of Mutual Funds have been made taxable in the hands of share/unitholders by the Finance Act, 2002. For small investors investing in equity, a threshold limit of Rs. 1,000 was provided for the purpose of TDS. Let us for senior citizens and for investors raise the threshold limit to Rs. 2,500. Thus, no tax will be deductible in respect of dividend up to Rs. 2,500, received from each company, or a mutual fund. With the computerisation of the Income-tax Department, data on TDS will be synchronised with the income returned by the assessee for better tax administration and compliance.

2. With a view to give effect to the announcement made by the Finance Minister in his Speech in the Lok Sabha, it is clarified that the threshold limit for the purpose of tax deduction at source from income by way of dividends under section 194 and income in respect of units under section 194K of the Income-tax Act shall be Rs. 2,500 (Rupees two thousand five hundred) with immediate effect. In other words, no tax would be deductible from dividend received from a company or income from units of a Mutual Fund, by a shareholder or unitholder, if the dividend or income from units, as the case may be, does not exceed Rs. 2,500.

Circular : No. 6/2002, dated 2-8-2002.