The effects of electron–hole interaction in the dynamic structure factor Sfalse(q,ωfalse) and the complex dielectric function ϵfalse(q,ωfalse) of valence electrons in lithium hydride at finite momentum transfer q are investigated by means of inelastic X‐ray scattering (IXS) spectroscopy and ab initio theoretical methods. Calculations of Sfalse(q,ωfalse) and ϵfalse(q,ωfalse) are conducted within time‐dependent density functional theory (TDDFT) in adiabatic local density approximation (ALDA) and many‐body perturbation theory (MBPT) based on the Bethe–Salpeter equation (BSE). The findings reveal that for low q an explicit treatment of electron–hole interactions using BSE formalism slightly modifies the low‐energy structures in Sfalse(q,ωfalse) in comparison with ALDA results but affects strongly the macroscopic dielectric functions. A very good agreement between the experimental and theoretical Sfalse(q,ωfalse) and ϵfalse(q,ωfalse) in all the range of investigated q values is achieved for calculations based on BSE after taking into account the full excitonic Hamiltonian. The results demonstrate the potential of approximations based on the BSE to accurately describe the valence excitation spectra, including the near‐onset region, and the dielectric response in insulating systems, where excitonic effects are relevant.