Tax On Dividend Income

Dividend income might feel like “free money” from your investments—but it’s not tax-free anymore.

Whether you’ve earned dividends from stocks, mutual funds, or REITs, the Income Tax Act has clear rules on how that income is taxed.

Let’s break it down, simply and practically.

📌 What is Dividend Income?

Dividend is the profit a company or mutual fund distributes to its shareholders.

You receive it:

• In your bank account (for stocks)
• Or in your mutual fund folio (as IDCW – Income Distribution Cum Capital Withdrawal)

🧾 Is Dividend Income Taxable in India?

✅ Yes. Since April 1, 2020, all dividend income is taxable in the hands of the investor.

Earlier, companies paid Dividend Distribution Tax (DDT), but that was abolished in Budget 2020.

💰 How is Dividend Income Taxed in 2025?

Type of Dividend	Tax Treatment
Dividend from Indian companies	Taxed as ‘Income from Other Sources’
Dividend from Mutual Funds	Taxed as ‘Income from Other Sources’
Dividend from REITs/InvITs	May be taxable or exempt depending on source
Foreign dividends	Taxed as Ordinary Income (including TDS abroad)

🧮 Tax Rate:

• Dividend is added to your total income
• Taxed at your applicable slab rate (5%, 20%, or 30%)

🔁 Example: How Dividend Tax Works

If your total income is ₹8,00,000 and you earned ₹50,000 in dividends:

• Your total taxable income becomes ₹8,50,000
• Tax is calculated as per slabs → No special dividend tax rate

🧾 TDS on Dividend Income

Yes, companies and mutual funds deduct TDS (Tax Deducted at Source) on dividends paid.

Dividend Paid (Per Year)	TDS Rate
Up to ₹5,000	NIL
Above ₹5,000	10%

⚠️ No PAN? TDS goes up to 20%

🧾 You can claim this TDS while filing your ITR and adjust it against your tax liability.

✅ Can I Claim Expenses Against Dividend Income?

Yes! Under Section 57 of the Income Tax Act, you can claim:

• Interest expense on loans taken to invest in dividend-yielding instruments
• Up to 20% of total dividend income is allowed as deduction

❌ Other expenses (like demat fees, advisor fees, etc.) are not deductible

📄 Where to Show Dividend in ITR?

• Report under “Income from Other Sources”
• Use Schedule OS in ITR-1 or ITR-2
• Include TDS details using Form 26AS or AIS

🌍 What About Foreign Dividend Income?

• Fully taxable in India at your slab rate
• TDS may be deducted abroad (e.g. 15% by US companies)
• You can claim Foreign Tax Credit (FTC) under Double Taxation Avoidance Agreement (DTAA) via Form 67

🧮 Summary – Tax on Different Types of Dividends

Source	Tax Rate	TDS	Tax Category
Indian Stocks	Slab Rate	10% > ₹5K	Income from Other Sources
Mutual Funds (IDCW)	Slab Rate	10% > ₹5K	Income from Other Sources
REITs / InvITs	Mixed (some exempt)	May apply	Depends on nature
Foreign Companies	Slab Rate	Yes	Income from Other Sources

🎯 Final Thoughts

Dividends are a great passive income source, but they’re no longer tax-free.
Still, with smart planning—like investing through tax-friendly routes, keeping TDS under control, and claiming eligible interest deductions—you can reduce the tax bite.

💡 Pro tip: Track all dividend receipts via Form 26AS and AIS to avoid mismatch while filing ITR.

FAQs

1. Is dividend income taxable in India?

Yes, all dividend income from Indian stocks and mutual funds is taxable at your individual income tax slab rate.

2. How much TDS is deducted on dividends?

TDS at 10% is applicable if the total dividend from a company or mutual fund exceeds ₹5,000 in a financial year.

3. Can I claim any deduction on dividend income?

Yes. You can claim a deduction under Section 57 for interest expenses incurred to earn dividend income, capped at 20% of the dividend received.

4. Are dividends from mutual funds taxed differently?

No. Dividends (IDCW) from mutual funds are taxed just like stock dividends—at your slab rate—and are subject to the same TDS rules.

5. Is foreign dividend income taxable in India?

Yes. Foreign dividends are fully taxable at your slab rate. However, you can claim foreign tax credit (FTC) if TDS was deducted abroad.

6. Which ITR form should I use to declare dividend income?

Most salaried or regular investors can declare dividend income under ITR-1 or ITR-2, under the head “Income from Other Sources”.