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Tax on Dividend Income India 2025-26

Updated: 3 June 2026  |  Income-tax Act 2025  |  Section 194 TDS

Dividend income is added to your total income and taxed at your slab rate (from FY 2020-21 — DDT abolished). TDS 10% if dividend from a company/AMC exceeds ₹5,000/year. MF IDCW: same slab rate treatment. Section 57 interest deduction: up to 20% of dividend income.
Slab
Dividend is now taxed at your income slab rate — DDT abolished from FY 2020-21.
Earlier, companies paid 15% DDT and dividend was tax-free. Now it's fully taxable in your hands.

Dividend Tax — Key Details

Dividend TypeTax TreatmentTDS RateThreshold
Indian company dividendSlab rate10% (Sec 194)₹5,000/year per company
Mutual fund IDCWSlab rate10% (Sec 194K)₹5,000/year per AMC
REIT/InvIT distributionSlab rate (dividend portion)10% (Sec 194LBA)All amounts
Foreign company dividendSlab rateForeign WHT (claim via FTC)No Indian TDS
NRI — Indian dividend20% + surcharge (Sec 195)20%All amounts
No PAN caseSlab rate20% (higher rate)All amounts

Growth vs IDCW — Tax Comparison

OptionTax TreatmentBetter for
Mutual Fund — Growth OptionLTCG 12.5% (>12m, equity), 20% STCG; debt: slabInvestors in 20-30% slab
Mutual Fund — IDCW OptionFull slab rate on each payoutInvestors in 0-10% slab only
Dividend from stocksFull slab rateSame as IDCW — slab rate
Stock — Capital GainsLTCG 12.5% (>12m equity)Investors in 20-30% slab

Frequently Asked Questions

How is dividend income taxed in India in FY 2025-26?
From FY 2020-21 onwards, dividend is taxed in the hands of the recipient (not the company). Dividend from Indian companies: Added to total income; taxed at your income slab rate — 0%, 5%, 10%, 15%, 20%, 25%, or 30% depending on total income. TDS: 10% if dividend from a company exceeds ₹5,000 in a year. Interest on borrowed funds to invest in shares: Deduction allowed up to 20% of dividend income (Section 57). No deduction for any other expense. DDT (Dividend Distribution Tax) era ended: Companies no longer pay DDT — abolished from FY 2020-21.
What is the TDS rate on dividend income?
TDS on dividend (Section 194): 10% TDS if total dividend from a company/fund house exceeds ₹5,000 per year. If PAN not given: 20% TDS. For NRI: 20% TDS (higher rate under Section 195, may reduce under DTAA). Mutual fund dividend (IDCW): 10% TDS if total payout from a single AMC exceeds ₹5,000 in a year. REIT/InvIT distributions: 10% TDS on dividend component. Form 15G (below 60, income < exemption): Submit to company/AMC to prevent TDS. Form 15H (senior citizens, nil tax): Submit to prevent TDS. Dividend received abroad (foreign companies): No TDS in India; taxable as income; may get Foreign Tax Credit.
Is dividend from mutual funds taxable?
Yes. Dividend from mutual funds — now called IDCW (Income Distribution cum Capital Withdrawal) — is fully taxable. Added to your total income; taxed at slab rate. TDS: 10% if total IDCW from a fund house exceeds ₹5,000 in a year. For investors in 30% tax bracket: IDCW option is highly tax-inefficient (30% tax on dividend vs 12.5% on LTCG in growth option). For investors in 0-5% bracket: IDCW and growth are nearly equivalent. Recommendation: Growth option + systematic withdrawal is usually more tax-efficient than IDCW for most investors.
How is dividend from foreign companies taxed in India?
Dividend from foreign companies (e.g., US stocks held through direct investing platforms): Added to total income; taxed at Indian slab rate. US companies deduct 25% withholding tax (or 15% if Form W-8BEN submitted claiming India-US DTAA). You can claim Foreign Tax Credit under Section 90/91 via Form 67 in ITR. Example: ₹10,000 dividend from Apple, $25 WHT deducted; you report ₹10,000 in India; tax at 30% = ₹3,000; Foreign Tax Credit ₹2,500 (if W-8BEN at 15% or ₹2,500 WHT); net Indian tax = ₹500. File Form 67 before filing ITR to claim FTC.
Can I deduct interest paid on loans taken to invest in shares from dividend income?
Yes — Section 57 allows deduction of interest on borrowed capital used to earn dividends. Limit: Up to 20% of dividend income (not 100%). Example: Dividend = ₹1,00,000; loan interest = ₹30,000; deductible = ₹20,000 (20% cap). No other expense (like brokerage, advisory fees) is deductible from dividend income. In ITR: Report dividend under Schedule OS (Income from Other Sources); claim interest deduction there. Note: This deduction is NOT available in the new tax regime (from FY 2023-24, new regime disallows most Schedule OS deductions). Only available under old regime.

Related Pages

Mutual Fund Tax LTCG on Shares DTAA Relief TDS Return Income from Other Sources File ITR
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