Dividend Income Tax for Shareholders in India: Guide 2026

You open your bank statement and see a credit of ₹13,500 from a company whose shares you hold, but the company says it paid you ₹15,000 and deducted ₹1,500 as TDS. What happened, how is this dividend taxed, and how do you report it so you do not get an Income Tax notice? This guide answers exactly that for Assessment Year 2026-27.

Since FY 2020-21, dividends are taxed in your own hands at your normal slab rate, in both the old and new tax regimes. The company deducts 10% TDS under section 194 (mutual funds deduct under section 194K) once your dividend from that payer crosses ₹10,000 in a financial year. You report the full dividend under Income from Other Sources, claim the TDS credit, and pay or get refunded the difference.

Until FY 2019-20, companies paid a Dividend Distribution Tax (DDT) before handing out dividends, and the dividend was tax-free in your hands. The Finance Act, 2020 abolished DDT with effect from 1 April 2020 (FY 2020-21) and brought back the classical system: the company pays you the dividend, and you pay tax on it at your slab rate. A dividend is no longer “tax-free” - it is added to your total income like interest from a fixed deposit.

To collect tax early, the payer deducts TDS before crediting your dividend.

📌 The ₹10,000 threshold is new. Budget 2025 raised it from ₹5,000 to ₹10,000 with effect from 1 April 2025 (FY 2025-26). For dividends received up to 31 March 2025, the old ₹5,000 limit applies.

Key points:

• The threshold is checked per company (or per AMC), per financial year - not on your total dividend across all companies.
• If you do not give your PAN, TDS is deducted at the higher rate of 20%.
• Section 194K covers only the dividend option of a mutual fund, not capital gains on selling or redeeming units. Those follow the LTCG rules under section 112A.

• Your dividend from that payer is ₹10,000 or less in the year.
• You submit Form 15G (below 60) or Form 15H (senior citizen) to the company or AMC, declaring that your total income is below the taxable limit, so no tax is payable. These forms stop TDS at source - they do not make the income tax-free if you actually owe tax.

⚠️ Even if no TDS is deducted, the dividend is still taxable. TDS is only an advance collection, not the final tax.

If you borrowed money to buy the shares or units, you may deduct the interest on that loan against the dividend, but only interest (no brokerage or collection charges), and only up to 20% of the dividend income for that year under section 57. Interest above 20% is lost.

Example: You earn ₹50,000 dividend and paid ₹15,000 interest on a loan to buy those shares. Your deduction is capped at 20% of ₹50,000 = ₹10,000, so you are taxed on ₹40,000.

No. Dividend income is taxed at your slab rate in both the old and the new regime. There is no special lower rate and no exemption for it in either regime. To pick the right return form, see which ITR form to file for 2026-27.

1. Open your AIS and Form 26AS on the income tax portal. Both list the dividend paid and TDS deducted, payer-wise. Cross-check against your bank statement.
2. Report the full GROSS dividend (before TDS) under Schedule OS - Income from Other Sources, not the net amount credited to your bank.
3. Enter it quarter-wise where asked, because advance-tax interest under section 234C depends on the timing of dividend receipt.
4. Claim the interest deduction (capped at 20%) under section 57, if you took a loan to invest.
5. Claim the TDS credit in the TDS schedule, and pay the balance or claim a refund - higher slab means you pay the difference, lower slab means a refund.

💡 If the dividend or TDS in your ITR does not match the AIS, the portal flags it. Fix it before filing - see how to dispute an AIS mismatch.

Consider a salaried investor in the 20% slab under the old regime who holds shares in two companies during FY 2025-26.

They report the full ₹23,000 under Schedule OS. At the 20% slab the tax is ₹4,600; they claim the ₹1,500 TDS credit and pay the balance ₹3,100. Had the slab been 5%, the tax would be ₹1,150 and they would get a ₹350 refund. (Illustrative figures.)

• Reporting only the net amount credited. Report the gross dividend; claim the TDS separately as credit.
• Assuming no TDS means no tax. Below-₹10,000 dividends still go into your taxable income.
• Forgetting small dividends. Even a ₹200 dividend appears in your AIS and must be reported.
• Claiming brokerage or demat charges. Only loan interest, capped at 20%, is allowed under section 57.
• Treating mutual fund redemption as dividend. Redemption gains are capital gains, not 194K dividend.

If your dividend never reached you because your shares are still in physical form, see how to dematerialise physical shares into a demat account.

If a public sector undertaking deducted TDS but it does not appear in your Form 26AS, you can file an RTI with that government company asking for the TDS challan and Form 16A details. Draft it free with our AI RTI Drafter, and for framing strategy read The RTI Playbook.

No. There is no exemption limit on dividends since FY 2020-21. The ₹10,000 figure is only a TDS threshold, not a tax exemption. Every rupee of dividend is added to your total income and taxed at your slab rate.

It is 10% under section 194 (shares) and section 194K (mutual fund units), deducted once your dividend from that one payer crosses ₹10,000 in the financial year (from FY 2025-26). Without PAN, the rate is 20%.

Yes, if your total income is below the taxable limit, submit Form 15G (under 60) or Form 15H (senior citizen) to the company or AMC. This stops TDS, but the dividend remains taxable if you actually owe tax for the year.

No. Dividend is taxed at your slab rate in both regimes. There is no concessional rate and no exemption for dividends in either the old or new regime.

Only interest on money borrowed to invest, and only up to 20% of the dividend for that year, under section 57. No other expense is deductible.

Under Schedule OS (Income from Other Sources), reporting the gross dividend quarter-wise, then claiming the TDS credit in the TDS schedule.

• Finance Act, 2020 - abolition of DDT, classical system from FY 2020-21 (Income Tax Act, 1961, sections 10(34), 115-O withdrawn).
• Income Tax Act, 1961 - section 194 (TDS on dividend), section 194K (TDS on mutual fund income), section 57 (20% interest deduction cap).
• Budget 2025 / Finance Act 2025 - TDS threshold raised from ₹5,000 to ₹10,000 with effect from 1 April 2025.
• Income Tax Department, AY 2026-27 return filing help: incometax.gov.in.

Last verified June 2026 for Assessment Year 2026-27. This is general information, not tax advice. Confirm figures for your year before filing.