Dividends from shares and from the dividend option of funds are added to the investors total income and taxed at the slab rate. A company or mutual fund also deducts tax at source (TDS) of 10% when the dividend to one investor from one company or scheme goes above ₹10,000 in a year and the full amount is still reported in the income tax return (ITR) whether or not tax was deducted.
Dividend income tax in India has changed in years. Dividend distribution tax was abolished from 1 April 2020 so the tax moved from the company to the investor the TDS threshold was raised from ₹5,000 to ₹10,000 from 1 April 2025 and the deduction for interest paid on money borrowed to invest was withdrawn from 1 April 2026.
How dividends are taxed for different investors
| Recipient | Rate of tax | TDS |
|---|---|---|
| Resident | Slab rate as income from other sources | 10% when dividend from one company or scheme exceeds ₹10,000 in a year |
| Resident individual without a Permanent Account Number (PAN) | Slab rate | 20% when dividend exceeds ₹10,000 in a year |
| Non-resident Indian (NRI) | 20% plus surcharge and cess or a lower rate under a tax treaty | 20% plus surcharge and cess with a lower rate possible under a treaty |
Surcharge on dividend income is capped at 15%, whatever the total income. Mutual fund payouts under the income distribution cum capital withdrawal (IDCW) option follow the treatment as dividends from shares.
An example of the TDS calculation
As an illustration an investor who receives ₹16,000 in dividends from one company in a year has ₹1,600 deducted as TDS. Receives ₹14,400. The full ₹16,000 counts as income for the year and is taxed at the investors slab rate and the ₹1,600 already deducted is credited against that tax. An investor in the 30% slab pays the balance at filing and an investor with income below the limit can claim a refund of the TDS.
What changed for borrowed money
Until 31 March 2026 interest paid on money borrowed to invest in shares or mutual funds could be deducted from dividend income, up to 20% of the dividend. That deduction has been withdrawn from 1 April 2026 under the Income-tax Act, 2025 so dividend income is now taxed on the amount with no deduction for interest or other costs such as brokerage and demat charges.
Dividend or growth option in a mutual fund
| Feature | IDCW option | Growth option |
|---|---|---|
| What the investor receives | payouts, which come out of the funds value | No payouts with the gains staying in the funds value |
| When tax arises | Each payout is taxed at the slab rate in that year | Tax arises only on redemption at capital gains rates |
| TDS | 10% above ₹10,000 per scheme in a year | None on the growth itself |
| Effect for a higher slab investor | The slab rate on every payout can be higher than the capital gains rate | Equity gains are taxed at 12.5% above ₹1.25 lakh a year for units held more than 12 months |
How to report dividend income in the ITR
| Step | What happens |
|---|---|
| 1. Collect the figures | The annual statements from the demat account and the mutual fund show the dividends received in the year. |
| 2. Match with tax statements | Form 26AS and the Annual Information Statement (AIS) show the dividends reported by companies and funds and the TDS deducted. |
| 3. Report as income from sources | The gross dividend goes into the schedule for other sources of income in the ITR including dividends below the TDS threshold. |
| 4. Claim the TDS credit | The tax already deducted is set against the tax payable. |
| 5. Pay any balance | Any tax due is paid through advance tax or at filing. |
Investors whose total income is below the limit can submit a nil-tax declaration to the company or fund house to stop TDS. The declaration is Form 121 under the Income-tax Act, 2025 which replaced Forms 15G and 15H.
What investors should take from this
The absence of TDS does not mean the absence of tax. Dividends below ₹10,000 from a company are still taxable. Must be reported and the slab rate decides how much of each payout is kept. For investors in slabs the growth option of a mutual fund can leave more after tax than payouts since tax is deferred until redemption and charged at the lower capital gains rate for long holdings.
Kuvera offers mutual funds and the tax statements and gains reports available through such platforms help match dividends with Form 26AS and the AIS before filing.
Frequently Asked Questions
1. Is dividend income in India?
Yes. It is taxed at the investors slab rate as income from sources and it is reported in the ITR.
2. What is the TDS on dividends?
10% when the dividend from one company or mutual fund scheme exceeds ₹10,000 in a year and 20% when the PAN is not given.
3. Is dividend below ₹10,000 taxable?
Yes. No TDS is deducted, though the dividend is still part of income and is taxed at the slab rate.
4. Can interest on a loan be deducted from dividend income?
Not any longer. The deduction of up to 20% of dividends was withdrawn from 1 April 2026.
5. How are dividends taxed for NRIs?
At 20% plus surcharge and cess with TDS at that rate and a lower rate is possible under the tax treaty with the country of residence.
Mutual fund investments are subject, to market risks. Read all scheme related documents carefully. Tax rules mentioned here reflect rules and can change.
