Dividend income in India refers to the earnings received by shareholders from their investments in shares of domestic or foreign companies. As per the current tax regime (effective from FY 2020–21), dividend income is fully taxable in the hands of the recipient under the head “Income from Other Sources.” It is taxed at the applicable slab rates for individuals and is subject to Tax Deducted at Source (TDS) if it exceeds specified limits. While interest expense to earn such income is partially deductible.
💰 Income Tax Implications of Dividend Income in India (AY 2025–26 / FY 2024–25)
From Financial Year 2020-21 onwards, the Indian tax regime changed the taxation of dividends. Here’s how dividend income is taxed now:
🔹 1. Taxability of Dividend Income
- Taxable in the hands of the shareholder: All dividends received from domestic and foreign companies are taxable as “Income from Other Sources.”
- The Dividend Distribution Tax (DDT) paid by companies earlier has been abolished.
🔹 2. Tax Rates Applicable
| Nature of Dividend | Taxability | Tax Rate |
|---|---|---|
| Domestic Company Dividend | Taxable | Slab rate of the recipient |
| Foreign Company Dividend | Taxable | Slab rate of the recipient |
| Dividend from mutual funds | Taxable | Slab rate of the recipient |
⚠️ No concessional rate for dividend income — taxed at applicable slab rate for individuals, HUFs, etc.
🔹 3. TDS on Dividend (Section 194/195)
| Payer | TDS Rate | Threshold |
|---|---|---|
| Domestic Company | 10% under Section 194 | ₹5,000 per financial year |
| Foreign Company | 20% (plus cess & surcharge) under Section 195 | No threshold |
🔸 TDS is deducted only if dividend exceeds ₹5,000 from a domestic company.
🔹 4. Deduction for Expenses (Section 57)
- Only interest expense incurred to earn dividend income is deductible, and even that is capped at 20% of the dividend income received.
- No deduction allowed for any other expenses (e.g., collection charges, advisor fees, etc.).
🔹 5. Advance Tax & Filing
- If dividend income exceeds ₹10,000, the taxpayer may be liable to pay advance tax.
- Must be reported under Schedule OS in the ITR.
🔹 6. Exemption for REITs/InVITs (Section 10(23FC)/10(23FCA))
- Dividend income from REITs and InVITs is exempt if SPV has not opted for section 115BAA.
- If SPV is under 115BAA, then dividend income becomes taxable.
📌 Example:
If an individual receives:
- ₹8,000 from Infosys (domestic dividend)
- ₹12,000 from Apple Inc. (foreign dividend)
Then:
- ₹20,000 is added to total income under “Income from Other Sources”
- Taxed at slab rate (say 20%)
-
Interest on loan taken to buy shares (say ₹4,000) → Deduction restricted to 20% of ₹20,000 = ₹4,000 (fully allowed)