Taxation of Dividend Income in India FY 2024-25 Guide
Dividend income is one of the most common sources of passive earnings for Indian investors. With the rise in retail stock market participation and mutual fund investments, understanding taxation of dividend income has become more important than ever.
Let’s break down the current rules, rates, and deductions applicable for FY 2024-25 (AY 2025-26) under the Income-tax Act, 1961.
What is Dividend Income?
Dividend income refers to payments received by shareholders from a company’s profits. It includes:
- Equity Shares of Indian companies
- Mutual Fund Units (equity or debt schemes)
- Foreign Dividends from global companies
Note: As per Section 2(22), certain payments other than declared dividends may also be treated as ‘deemed dividend’.
Key Rule: Dividend Taxed in Investor’s Hands
Since Finance Act 2020, Dividend Distribution Tax (DDT) has been abolished. Now, dividend is taxed in the hands of the recipient under the applicable slab rates.
How is Dividend Income Taxed in India?
| Type of Dividend | Taxability | Applicable Tax Rate |
|---|---|---|
| Indian Company Dividend | Taxable | Slab rate (Old or New regime) |
| Foreign Dividend | Taxable | Slab rate; no special rate benefit |
| Mutual Fund Dividend | Taxable | Slab rate; includes equity & debt funds |
- Dividends above ₹5,000 from a company attract TDS under Section 194.
TDS on Dividend Income: Section 194
| Recipient Type | TDS Threshold | TDS Rate |
|---|---|---|
| Resident Individual | ₹5,000/year | 10% (PAN) / 20% (No PAN) |
| NRI / Foreign Co. | Nil | 20% (plus surcharge + cess) under Sec 195 |
- Submit Form 15G/15H if total income is below taxable limit to avoid TDS.
- Apply for lower/NIL deduction via Form 13 to AO.
Reporting Dividend in ITR
- Show dividend income under “Income from Other Sources”
- If you use ITR-1: Use Schedule OS (now auto-filled from AIS/26AS)
- Deduct Section 57(i) expenses:
- No other expenses (brokerage, demat charges) are deductible.
Expert Tip: Avoid Double Taxation
Check Form 26AS and AIS to verify TDS already deducted. If dividend has been taxed overseas (e.g. U.S. stock), you may claim foreign tax credit under Rule 128 if DTAA applies.
Legal References and CBDT Clarifications
- Finance Act 2020: Scrapped DDT regime
- Section 194: TDS on dividends for residents
- Section 57: Deduction for interest on loan taken for investment
- CBDT Circular No. 18/2020: Clarification on dividend taxation post-DDT regime
🔗 External source: CBDT Circulars – incometaxindia.gov.in
Real Case Insight: Foreign Dividend and Double Taxation
In Wipro Ltd v. DCIT (2023), the ITAT ruled that foreign tax credit can be availed for dividend taxed both abroad and in India, provided DTAA conditions and documentary proof are met.
Summary
Indian and foreign dividends are fully taxable, with TDS applicable above ₹5,000. Investors can claim interest deductions under Section 57 and use Form 15G/15H or DTAA benefits where eligible.
Final Take – Plan Your Taxes Smartly
Dividend income may look passive, but tax compliance is active!
✔ File ITR with accurate AIS entries
✔ Claim rightful deductions and credits
✔ Choose the right regime (old/new) for tax savings
Need help filing ITR with dividend and capital income?
File with Efiletax today →
FAQs
Q1. Is dividend income tax-free in India?
No. It is fully taxable in the hands of the recipient since FY 2020-21.
Q2. What deductions are allowed on dividend income?
Only interest expense (up to 20% of dividend) under Section 57.
Q3. Can I claim refund of TDS on dividend?
Yes. If your total tax liability is lower than TDS deducted, claim refund through ITR filing.
Q4. How to avoid TDS on dividend income?
Submit Form 15G/15H to the company, or apply for a lower deduction certificate via Form 13.