Why Should You File ITR Even with Dividend Income Less Than 10 Lakhs but More Than 2 Lakhs?

According to the 2016 budget, income tax is applicable on dividend income from domestic companies when the amount exceeds INR 10 lakhs annually. The applicable tax rate is 10% on the amount that goes above INR 10 lakhs. While you might not be obligated to pay any income tax, there are compelling reasons for filing your Income Tax Return (ITR).

Rationale for Filing ITR

1. Tax Transparency
When you file your ITR, the government gains insight into your financial activities. This tells them that you are a responsible taxpayer who is genuinely declaring your income. Transparency is crucial for building a trust-based relationship with the tax department and ensuring that your tax status accurately reflects your financial reality.

2. Loan Applications
Many banks and financial institutions require you to submit your ITR to assess your eligibility for loans. Filing your ITR demonstrates that you have a clear and accurate record of your income, which is valuable when lenders evaluate your capacity to repay the loan.

Without providing these records, it might be more challenging to receive approval for your loan applications. The information you provide in your ITR helps lenders make informed decisions about your financial credibility and borrowing capacity.

Understanding the Dividend Income Tax Threshold

Dividend income from domestic companies is subject to income tax if it exceeds Rs.2 lakhs. However, it is important to note the tax slab:

Rs. 2 Lakhs to Rs. 10 Lakhs: No tax liability on this portion. Rs. 10 Lakhs to Rs. 50 Lakhs: 10% tax on the amount exceeding Rs. 10 Lakhs. Rs. 50 Lakhs and above: Increasing tax rates that increase with the incremental amount.

Given that your dividend income falls in the range of Rs. 2 Lakhs to Rs. 10 Lakhs, you are exempt from paying any tax. Regardless, filing your ITR is advisable to ensure that your financial history is transparent and accurate.

Steps to File ITR

Filing an ITR is relatively straightforward, and you can complete it online using the Income Tax Department’s official portal. Here are the steps:

Access the ITR Filing Portal: Visit the official Income Tax Department website or use their dedicated mobile apps to start the filing process. Choose the Correct ITR Form: Depending on your specific situation, choose the appropriate ITR form (such as ITR-1, ITR-2, ITR-3, etc.). Enter Your Financial Details: Provide all the necessary financial information, including your dividend income, employer details, and other sources of income if applicable. Submit Your ITR: Once all details are entered, review and submit your ITR report. Confirmation Notice: An acknowledgment receipt will be generated upon submission for your records.

Conclusion

Filing your Income Tax Return, even if your dividend income is below the Rs.10 Lakhs threshold but above Rs.2 Lakhs, is not just a formal requirement but a strategic move to maintain financial transparency and enhance your creditworthiness. By doing so, you ensure that your financial records are up-to-date and transparent, which can significantly impact key aspects of your financial life, such as loan applications and general credibility with financial institutions.

Remember, maintaining accurate and transparent financial records is crucial for long-term financial health and stability.