How is dividend income taxed in India?

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'.

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

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.

5Stopping the TDS before it is deducted

Where your total income for the year will be below the taxable limit, the 10% TDS on dividends can be prevented rather than reclaimed.

Form 121 is submitted to the company or its registrar — not to the income-tax department — declaring that your estimated tax for the year is nil. It replaced Forms 15G and 15H from 1 April 2026 and is a single declaration for residents of any age, so the old split between under-60s and senior citizens no longer applies. It must be given before the dividend is paid, and it is valid for one financial year only.

Declaring nil tax when your income will in fact be taxable is a false declaration with its own consequences, so it is worth estimating properly rather than filing the form reflexively.

6Dividends from foreign shares

A dividend from a foreign company is taxed in India for a resident, and the mechanics differ from an Indian dividend in three ways.

There is no Indian TDS, because section 194 applies only to domestic companies — so nothing is withheld here and the entire liability falls due as advance tax or self-assessment tax. Tax will usually have been withheld in the source country instead, and relief for it is claimed under the applicable double taxation avoidance agreement, which requires Form 67 to be filed before the return.

The shares themselves are a foreign asset, so a resident and ordinarily resident shareholder must disclose them in Schedule FA whether or not any dividend arose.

7Advance tax when a dividend is unexpected

Dividends are declared at the company's discretion, so they are difficult to forecast at the first advance-tax instalment — and the law recognises this.

Where a shortfall in an instalment is attributable to dividend income, no interest under section 234C is charged for the instalments falling due before the dividend was received, provided the tax is paid in the remaining instalments or by 31 March.

The relief mirrors the one available for capital gains. It does not extend to section 234B, so leaving the whole liability to the return still attracts interest.

8Where dividends appear in your return

Dividends are reported to the department by the company, so they are prefilled in the Annual Information Statement and usually in the return itself. That prefill should be checked rather than accepted.

The income goes under Schedule OS as income from other sources. Where a dividend was received but no TDS was deducted — because it was below the threshold, or because a Form 121 was filed — it still has to be declared, and this is where under-reporting usually happens.

Where the AIS shows a dividend you did not receive, or an amount that differs from your records, submit feedback on the AIS rather than silently filing a different figure. An unexplained mismatch is exactly what the system is built to flag.