How is dividend income taxed in India?

By the India Law Simplified editorial team · Verified against the bare Acts & official portals · Updated 2026-07-28 · ~4 min read

⚡ Quick answer

Since FY 2020-21, dividends are taxed directly in the hands of the shareholder at their normal slab rate — the old dividend distribution tax (paid by companies) was abolished. The company deducts 10% TDS under Section 194 if your total dividend from it crosses ₹10,000 in a year (raised from ₹5,000 by Budget 2025) (20% if you haven't given your PAN). You report dividends under 'income from other sources' in your ITR and claim the TDS as credit.

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The way dividends are taxed in India changed completely a few years ago, and many investors are still working off the old rules. Earlier, dividends up to ₹10 lakh were tax-free in your hands. Now, every rupee of dividend is taxable at your slab rate. This guide explains the current rules clearly — how dividends are taxed, the TDS that's deducted, the one deduction you can claim, and how to report it.

1The current rule: taxed at your slab

Dividends from Indian companies and from mutual funds are simply added to your total income and taxed at your applicable slab rate. There's no special concessional rate and no exemption threshold for the income itself.

This applies to both equity dividends and dividends/income distributions from mutual funds — all classified as 'income from other sources'.

⚠️ ImportantBefore FY 2020-21, companies paid a 'dividend distribution tax' and dividends up to ₹10 lakh were exempt for shareholders. Both are gone — the shareholder now pays tax directly at their slab.

2TDS on dividends (Section 194)

When a company pays you a dividend, it deducts TDS before crediting it:

10% TDS if your total dividend from that company in the year exceeds ₹10,000 (raised from ₹5,000 by Budget 2025)
20% TDS if you haven't provided your PAN
This TDS is not extra tax — it's a credit you adjust against your final liability (or claim as a refund) when filing

💡 ExampleYou receive ₹40,000 of dividend from a company. Since it exceeds the ₹10,000 TDS threshold (raised from ₹5,000 by Budget 2025), the company deducts ₹4,000 (10%) TDS and credits you ₹36,000. When you file, the full ₹40,000 is added to your income and taxed at your slab; the ₹4,000 already deducted is credited, so you only pay the balance (or get a refund if your slab tax is lower).

3The one deduction you can claim

You can't deduct most expenses against dividend income, but there's one exception: interest on money you borrowed to buy the shares. This is deductible, but capped at 20% of the dividend income — no other expenses (like demat charges or advisory fees) are allowed.

4How to avoid a year-end surprise

Because dividends are taxed at your slab but only 10% TDS is deducted, higher-bracket investors can have tax due at filing:

If you're in the 30% slab, the 10% TDS doesn't cover your full liability — keep aside the difference.
Large dividend income can also trigger advance-tax obligations (if your total uncovered tax crosses ₹10,000).
Report all dividends — they appear in your AIS, so omitting them invites a mismatch notice.

✅ TipIf you're a high earner with significant dividends, factor the slab-rate tax into your advance-tax payments — the 10% TDS alone won't be enough, and you'll otherwise owe interest under 234B/234C.

Key takeaways

Since FY 2020-21, dividends are taxed at your slab rate in your own hands.
The old dividend distribution tax and the ₹10 lakh exemption are gone.
10% TDS (Section 194) applies if your dividend from a company exceeds ₹10,000 (raised from ₹5,000 by Budget 2025; 20% without PAN).
Only interest on money borrowed to buy the shares is deductible, capped at 20% of the dividend.
Higher-bracket investors should plan advance tax — 10% TDS won't cover a 30% slab liability.

Frequently asked questions

Is dividend income tax-free in India?

No — since FY 2020-21 dividends are fully taxable at your slab rate. The earlier exemption (up to ₹10 lakh) and the dividend distribution tax were removed; now the shareholder pays tax directly.

At what amount is TDS deducted on dividends?

10% TDS is deducted under Section 194 if your total dividend from a company exceeds ₹10,000 in a financial year (raised from ₹5,000 by Budget 2025) (20% if you haven't given your PAN). It's a credit you adjust when filing.

Can I claim any expenses against dividend income?

Only interest on money borrowed to purchase the shares, and that's capped at 20% of the dividend income. No other expenses (brokerage, demat, advisory fees) are deductible against dividends.

Are mutual fund dividends taxed the same way?

Yes — dividend (income distribution) from mutual funds is added to your income and taxed at your slab rate, just like company dividends, with TDS applicable above the threshold.