Dear Investors,
We recently introduced for our users the ability to Rent stocks via the SLBM (Stock Lending and Borrowing Mechanism) for our users. We are happy to witness participation from thousands of investors on Dhan who now found a new way to earn passive income from their long-term investments made on Dhan.
With time coming up soon for the ITR (Income Tax Returns) filings and later the advance tax season, we thought to share this post for the benefit of our users and everyone to help them understand the tax implications of Stock Renting via SLBM.
Since SLBM is relatively new for a large section of investors, there is limited clarity available on how the income and expenses from such transactions are treated for taxation purposes. To help you navigate this better, here’s a detailed breakdown of how taxation works for both lenders and borrowers.
For Renters:
When you rent your stocks through SLBM, the income you earn in the form of renting fees is classified as “Income from Other Sources.” This income is added to your overall taxable income and is taxed according to your applicable income tax slab.
If a dividend is declared during the lending period, you remain eligible to receive it as the beneficial owner. This amount is typically reflected in your Dhan trading ledger within 2–3 working days after the record date. This dividend income is classified as “Income from Other Sources” and is taxed according to your applicable income tax slab.
For Borrowers:
When you borrow stocks through SLBM, the fee paid for borrowing is subject to 18% GST under the Reverse Charge Mechanism (RCM). Under this mechanism, the responsibility of paying GST lies with the borrower directly, rather than the service provider. This means you are required to account for and pay the applicable GST on the borrowing fee.
Further, if a dividend is declared during the borrowing period, the company deducts TDS before crediting the dividend. This deducted TDS can be claimed while filing your ITR, subject to applicable rules.
To summarise, renters earn income that is taxed as per their slab rate without any GST liability, while borrowers incur borrowing costs that attract GST under RCM. Dividends in both cases remain taxable, with TDS applicable wherever relevant, however borrower is eligible for filing a return for the same.
It is important to note that the exact tax treatment may vary depending on your individual profile, nature of income (trading or investing), and overall tax position. Hence, it is always advisable to consult a tax advisor or professional for guidance specific to your situation.
Thank you,
Tanvi Vartak
