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Guide · Income Tax

Income Tax on Dividends —
Slab Rate + 10% TDS

How dividend income is taxed in your hands at slab rates, the Section 194 TDS at 10% (threshold now Rs10,000), the only deduction allowed, and how mutual-fund and foreign dividends are treated.

TaxClue Income-Tax Desk Updated 18 August 2026 5 min read 17 FAQs answered
Updated for FY 2025-26 Reviewed by a CA DDT abolished — you pay now
Quick Answer

Since FY 2020-21 (AY 2021-22), dividends are fully taxable in your hands at your income-tax slab rate under "Income from Other Sources" — Dividend Distribution Tax (DDT) was abolished. The company deducts TDS at 10% under Section 194 once dividend from that company crosses Rs10,000 in a year (raised from Rs5,000 with effect from 1 April 2025). You claim that TDS back in your ITR.

Your tax rate Slab rate
TDS u/s 194 10%
TDS threshold Rs10,000
Only deduction 20% interest
The core rule

How Dividend Income Is Taxed

Dividend from Indian shares, equity/debt mutual funds (IDCW) and inter-corporate holdings is added to your total income and taxed at the slab you fall into — there is no separate flat rate for resident individuals. Under the new default regime for AY 2026-27, tax is effectively nil up to Rs12,00,000 of total income (Section 87A rebate), so small investors often pay no net tax even after TDS.

Old

Before AY 2021-22 — DDT regime

  • Company paid DDT ~20.56%
  • Dividend exempt in your hands up to Rs10 lakh
  • 10% extra tax above Rs10 lakh (Sec 115BBDA)
  • No TDS on the payout
  • You reported it as exempt income
vs
Now

AY 2021-22 onwards — you pay

  • You pay at your slab rate
  • Taxed under Income from Other Sources
  • No exemption limit — every rupee counts
  • 10% TDS if dividend > Rs10,000/company
  • Advance tax may apply on the payout
Advance tax on dividends

You cannot foresee dividends, so advance-tax interest under Sections 234B/234C is not charged on dividend income for the instalments that fell due before it was actually received. Pay advance tax on the dividend in the quarter you receive it. See our advance-tax guide.

Section 194 / 194K / 195

TDS on Dividend Income

Indian companies and AMCs deduct TDS before paying you. From 1 April 2025 the no-TDS threshold was doubled from Rs5,000 to Rs10,000 per company/AMC per year — relief for small retail investors. Every deduction shows up in your Form 26AS / AIS and is set off in your ITR.

SectionPayerRecipientTDS RateThreshold (FY 2025-26)
Section 194Indian companyResident10%Dividend > Rs10,000/company/year
Section 194KMutual fund (AMC)Resident10%IDCW > Rs10,000/AMC/year
Section 195Indian companyNon-resident / foreign co.20%+No threshold (plus surcharge & cess)
Section 195 (DTAA)Indian companyNR in treaty countryDTAA rateNeeds Form 10F + TRC (often 10-15%)

Rates are before surcharge and 4% health & education cess. Confirm on the official portal before relying on them.

Avoid TDS if your income is below the taxable limit

If your total income is below the basic exemption, file Form 15G (individual/HUF) or Form 15H (senior citizens) with the company/AMC to stop the 10% TDS. Companies and firms cannot use 15G/H — they apply for a lower/nil-deduction certificate under Section 197.

Got TDS on dividends you want refunded? File your ITR and claim the credit.

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Section 57(i)

What You Can Deduct From Dividends

Dividend income allows only one deduction: interest on money borrowed to buy the shares or units — and only up to 20% of the gross dividend. Brokerage, STT, demat charges and cost of acquisition are not deductible against dividends.

ItemDeductible?Limit / Reason
Interest on loan to buy shares / MF unitsYesMax 20% of the dividend (Sec 57)
Brokerage / STT / transaction chargesNoNot allowed against dividend head
Demat / administrative expensesNoNot applicable
Cost of acquisition of sharesNoRelevant only for capital gains
Chapter VI-A (80C, 80D, 80G)IndirectReduces total income, not dividend specifically

Chapter VI-A deductions are unavailable in the new default regime anyway.

Worked example

Rs1,00,000 Dividend — Interest Cap in Action

Interest deduction capped at 20%

Gross dividendRs1,00,000
Loan interest actually paidRs30,000
Deduction allowed (20% cap)Rs20,000
Taxable dividendRs80,000

TDS already deducted

Dividend from Company ARs1,00,000
TDS @ 10% (u/s 194)Rs10,000
Credit in your ITRRs10,000

The Rs80,000 net dividend is added to your total income and taxed at your slab; the Rs10,000 TDS is set off against your final liability, with any excess refunded.

Mutual funds & abroad

Mutual-Fund, IDCW & Foreign Dividends

A mutual-fund IDCW payout (the old "dividend option") is taxed as dividend income at slab rates with 10% TDS under Section 194K. Do not confuse it with capital gains on redeeming units, which follow separate LTCG/STCG rules.

  • Equity & debt MF IDCW — slab rate; 10% TDS if IDCW from one AMC exceeds Rs10,000/year.
  • Growth-plan redemptions are not dividends — they are capital gains, taxed under the capital-gains rules.
  • Foreign dividends (US stocks via LRS, etc.) are taxable in India; a resident can claim Foreign Tax Credit for tax withheld abroad via Form 67 filed before the ITR due date.
  • Foreign shares and dividends must be disclosed in the Schedule FA / FSI of your ITR — non-disclosure carries heavy penalties.
US dividends are withheld at 25% at source

The US typically withholds 25% on dividends paid to Indian residents (reducible under the India-US DTAA). Claim that as a Foreign Tax Credit against your Indian tax using Form 67 so you are not taxed twice — but you must still report the gross dividend and use ITR-2/3.

  • Pull dividends from AIS / Form 26AS
  • Report under Income from Other Sources
  • Claim only the 20% interest deduction
  • Set off Section 194/194K TDS
  • File Form 15G/15H if below taxable limit
  • Disclose foreign dividends in Schedule FA
  • Claim FTC via Form 67 (foreign)
  • Use ITR-2 (or ITR-3 if business income)

Dividends across stocks, MFs and foreign shares? Let a CA reconcile and file it right.

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Government sourcesDividend & interest taxation: incometax.gov.in · TDS threshold Rs10,000 (Sec 194/194K): Finance Act 2025, w.e.f. 1 Apr 2025 · Interest deduction cap: Section 57(i), Income-tax Act · Foreign Tax Credit: Section 90/91 & Rule 128 (Form 67)
People also ask

Frequently Asked Questions

How It Is Taxed
How is dividend income taxed in India now?
Since FY 2020-21 (AY 2021-22), dividend income is fully taxable in the hands of the shareholder at their applicable income-tax slab rate under the head Income from Other Sources. Dividend Distribution Tax (DDT), which the company earlier paid, was abolished by the Finance Act 2020. So today the company pays out the full dividend and you pay the tax at 0%, 5%, 10%, 15%, 20%, 25% or 30% depending on your total income.
Is dividend income tax-free up to Rs10 lakh?
No, not anymore. The old rule where dividends were exempt in your hands up to Rs10 lakh (with 10% extra tax above that under Section 115BBDA) applied only up to AY 2020-21 under the DDT regime. From AY 2021-22 there is no exemption limit — every rupee of dividend is taxable at your slab rate. The Rs10,000 figure today is only the TDS threshold, not an exemption.
Will I pay any tax on dividends if my income is under Rs12 lakh?
Possibly not. Under the new default regime for AY 2026-27, the Section 87A rebate makes tax nil up to Rs12,00,000 of total income (about Rs12.75 lakh for salaried after the Rs75,000 standard deduction). If your total income including dividends stays within that, your net tax is nil — but if TDS was deducted you must still file an ITR to claim the refund.
Under which head is dividend income shown in the ITR?
Dividend income is reported under Income from Other Sources. It cannot be set off against business losses or capital losses and must be computed separately, then added to total income. Because you have dividend income you generally file ITR-2 (or ITR-3 if you also have business/professional income), not the simple ITR-1.
Do I need to pay advance tax on dividend income?
Yes, if your total tax liability exceeds Rs10,000 for the year. However, because dividends cannot be predicted, Section 234C interest relief applies — you pay advance tax on the dividend in the quarter you actually receive it, rather than being penalised for earlier instalments. TDS already deducted reduces the advance tax you owe.
TDS
What is the TDS rate on dividends and when is it deducted?
TDS on dividends from Indian companies is 10% under Section 194, deducted only if the total dividend paid by one company to you in a financial year exceeds Rs10,000. This threshold was raised from Rs5,000 to Rs10,000 with effect from 1 April 2025 (FY 2025-26). The TDS is deducted before the dividend is credited and appears in your Form 26AS and AIS.
Is the TDS threshold on dividends Rs5,000 or Rs10,000?
For FY 2025-26 (AY 2026-27) onwards it is Rs10,000. The Finance Act 2025 doubled the Section 194 and Section 194K no-TDS threshold from Rs5,000 to Rs10,000 with effect from 1 April 2025. For years up to FY 2024-25 the threshold was Rs5,000. The limit is per company (or per AMC), not a combined figure across all your holdings.
What is TDS on mutual fund dividends (IDCW)?
Mutual-fund dividend, now called IDCW (Income Distribution cum Capital Withdrawal), attracts 10% TDS under Section 194K if the total IDCW from one AMC exceeds Rs10,000 in the financial year. The AMC deducts it before crediting the payout. Note this applies only to the IDCW payout — capital gains on redeeming units are taxed separately under the capital-gains rules.
How can I avoid TDS on dividends?
If your total income is below the basic exemption limit, submit Form 15G (for individuals/HUF) or Form 15H (for senior citizens) to the company or AMC so they do not deduct the 10% TDS. Companies, firms and taxpayers above the limit cannot use these forms and must instead apply to the Assessing Officer for a lower or nil deduction certificate under Section 197.
Can I claim back TDS deducted on my dividends?
Yes. TDS deducted under Section 194/194K is only a prepayment of your tax. When you file your ITR, it is set off against your actual tax liability computed on total income. If the TDS is more than your final liability — common for small investors in the nil-tax bracket — the excess is refunded after your return is processed.
Deductions
What deductions can I claim against dividend income?
Only one: interest on money borrowed to invest in the shares or mutual-fund units, and even that is capped at 20% of the gross dividend under Section 57(i). For example, on Rs1,00,000 of dividend you can deduct at most Rs20,000 of interest, even if you paid more. No other expense — brokerage, STT, demat charges or cost of acquisition — is deductible from dividend income.
Can I deduct brokerage or the cost of buying shares from dividends?
No. Brokerage, STT, demat and transaction charges are not deductible against dividend income, and the cost of acquisition of the shares is relevant only for capital gains, not dividends. The Finance Act 2020 deliberately limited dividend deductions to interest expense capped at 20% to prevent excessive erosion of the dividend tax base after DDT was removed.
Do 80C and other Chapter VI-A deductions apply to dividend income?
Not directly. Chapter VI-A deductions such as 80C, 80D and 80G reduce your overall taxable income but cannot be claimed specifically against the dividend head. In practice they are also unavailable if you are on the new default regime, which does not allow most Chapter VI-A deductions in the first place.
MF & Foreign
How is dividend from mutual funds taxed compared to stocks?
They are taxed identically in your hands — both are added to total income and taxed at slab rates. The difference is administrative: stock dividends attract TDS under Section 194 (via the company/registrar), while mutual-fund IDCW attracts TDS under Section 194K (via the AMC). Both use the Rs10,000 threshold. Importantly, only the IDCW payout is dividend; growth-plan redemptions are capital gains.
How are dividends from foreign companies taxed for Indian residents?
Foreign dividends (for example from US stocks bought via LRS) are taxable in India — for a resident individual generally at slab rates. The source country usually withholds tax (the US withholds about 25%, reducible under the India-US DTAA). You can claim that as a Foreign Tax Credit under Section 90/91 by filing Form 67 before your ITR due date, so you are not taxed twice. Foreign holdings must be disclosed in Schedule FA of the ITR.
What TDS applies to dividends paid to NRIs?
Dividends paid to non-residents attract TDS at 20% (plus surcharge and 4% cess) under Section 195, with no threshold. If the NRI is resident in a country with a Double Taxation Avoidance Agreement (DTAA) with India, a lower treaty rate (often 10-15%) can apply, provided the NRI furnishes a Tax Residency Certificate and Form 10F. The NRI then reports the dividend and TDS in an Indian ITR.
Which ITR form do I use for dividend income?
If dividends (and possibly capital gains or foreign income) are your only extra income beyond salary, you file ITR-2, because ITR-1 does not support capital gains or foreign-asset schedules well and salaried taxpayers with dividends usually have to move to ITR-2. If you also have business or professional income, use ITR-3. TaxClue can pick and file the correct form for you.
If you would rather not do it yourself

Related TaxClue services

ITR FilingCA-filed return with your dividends, TDS credit and refund handled.See the service →Income Tax CalculatorEstimate your FY 2025-26 tax including dividend income in minutes.See the service →Advance Tax PlanningWork out advance-tax instalments when dividends push you over Rs10,000.See the service →Old vs New RegimeSee which regime taxes your dividend + other income the least.See the service →
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