Dividend Income Tax in India 2026 — Rates, TDS, and How to Report in ITR

Dividend income from Indian companies and mutual funds is fully taxable in your hands since April 1, 2020. The old Dividend Distribution Tax (DDT) system — where companies paid tax before distributing dividends — was abolished by the Finance Act 2020. Here is everything you need to know for FY 2025-26.

What Changed in 2020 — DDT Abolished

Before April 1, 2020, companies paid DDT at 15% (plus surcharge and cess) before distributing dividends. Shareholders received tax-free dividends.

From April 1, 2020 onwards:

• Companies pay no DDT
• Dividends are taxable in the hands of the shareholder at their applicable slab rate
• TDS is deducted at source if dividend exceeds ₹5,000 in a financial year

This change benefits shareholders in lower tax brackets (0% or 5% slab) but increases the tax burden for those in the 30% bracket.

Tax Rate on Dividend Income

Dividend income is added to your total income and taxed at your applicable slab rate:

There is no flat rate for dividends — it is always your marginal slab rate.

Note: Section 115BBDA (which taxed dividends above ₹10L at 10% for individuals) was also abolished from FY 2020-21. All dividends are now taxed at slab rates regardless of amount.

TDS on Dividend Income

Companies and mutual funds deduct TDS before paying dividends:

Important: The ₹5,000 threshold is per company, not aggregate. If you receive ₹4,000 from Company A and ₹4,000 from Company B, no TDS is deducted by either — but both amounts are still taxable in your ITR.

TDS on Mutual Fund Dividends

Mutual funds (dividend/IDCW option) also deduct TDS at 10% if the total dividend paid to you in a financial year exceeds ₹5,000. This applies to both equity and debt mutual funds.

How to Claim TDS Credit

TDS deducted on dividends appears in your Form 26AS and AIS (Annual Information Statement). You claim credit for this TDS when filing your ITR.

Steps:

1. Download Form 26AS from the IT portal
2. Check Part A for TDS on dividends (Section 194 for companies, Section 194K for mutual funds)
3. Cross-check with dividend warrants / statements from your broker or AMC
4. Report the gross dividend in Schedule OS of your ITR
5. The TDS credit is automatically adjusted against your tax liability

Where to Report Dividend Income in ITR

ITR-1 (Sahaj)

Dividend income up to ₹5,000 can be reported in ITR-1 under "Income from Other Sources." If dividend income exceeds ₹5,000, you must use ITR-2.

Wait — this changed for AY 2026-27: ITR-1 now allows dividend income without any upper limit, provided you do not have capital gains. Check the latest ITR-1 instructions before filing.

ITR-2

Report in Schedule OS (Other Sources):

• Gross dividend received (before TDS)
• TDS deducted (auto-populated from Form 26AS)

Schedule for Mutual Fund Dividends

Mutual fund dividends (IDCW) go in Schedule OS under "Dividend from mutual funds."

Dividend from Foreign Companies

If you receive dividends from foreign companies (e.g., US stocks via international brokers), the tax treatment is different:

• Taxed at 20% flat rate under Section 115E (for NRIs) or at slab rate for residents
• Foreign tax credit available under Section 90/91 for taxes paid abroad
• Report in Schedule FSI (Foreign Source Income) in ITR-2

Deduction on Dividend Income

You can claim a deduction for interest paid on loans taken to invest in shares/mutual funds, under Section 57. The deduction is limited to 20% of the dividend income. No other deduction is allowed against dividend income.

Example:

• Dividend received: ₹1,00,000
• Interest on loan for investment: ₹30,000
• Deductible interest: ₹20,000 (20% of ₹1,00,000)
• Taxable dividend: ₹80,000

Dividend Reinvestment vs IDCW Option

If you hold mutual funds in the Growth option, there is no dividend — returns come via NAV appreciation (capital gains on redemption). No TDS, no annual tax.

If you hold the IDCW (Income Distribution cum Capital Withdrawal) option, the fund pays out dividends periodically. These are taxable each year at your slab rate.

For long-term investors in the 20–30% tax bracket, the Growth option is generally more tax-efficient.

Advance Tax on Dividend Income

If your total tax liability (including tax on dividends) exceeds ₹10,000 in a year, you must pay advance tax in four instalments:

Dividend income is often unpredictable. If you receive a large dividend late in the year, you may face interest under Section 234C. The IT Act provides relief — if dividend income was not estimable, you can pay the entire advance tax by March 15 without penalty.

Common Mistakes

1. Not reporting dividends below ₹5,000 — No TDS does not mean no tax. All dividends are taxable.
2. Forgetting IDCW payouts — Mutual fund dividend statements are in AIS; the department already knows.
3. Double-counting — Do not add TDS-deducted amount separately; report gross dividend and claim TDS credit.
4. Wrong schedule — Dividend goes in Schedule OS, not Schedule CG.

Frequently Asked Questions

Is dividend income taxable if I am in the zero-tax slab?

Yes, dividend income is added to your total income. If your total income (including dividends) stays within the basic exemption limit (₹3L new regime, ₹2.5L old regime), no tax is payable. You can claim a refund of TDS deducted.

Can I submit Form 15G/15H to avoid TDS on dividends?

Yes. If your total income is below the taxable limit, you can submit Form 15G (below 60 years) or Form 15H (senior citizens) to the company or mutual fund to prevent TDS deduction.

What if the company does not deduct TDS?

If the company fails to deduct TDS, you are still liable to pay tax on the dividend income. Report it in Schedule OS and pay self-assessment tax if required.

Are dividends from REITs and InvITs taxable?

Yes. Dividends from REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are taxable at slab rates. However, the "interest" component distributed by REITs/InvITs is also taxable at slab rates, while the "capital gains" component follows capital gains tax rules.

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