Current Dividend Tax Law in India
Dividend received by a shareholder is generally taxable in the shareholder's hands. Under Section 92(2)(a) of the Income-tax Act, 2025, dividend is specifically included under the head "Income from other sources". The actual tax payable depends on the recipient's residential status, legal status, applicable tax regime, special-rate provisions and any relevant tax treaty.
Abolition of Dividend Distribution Tax
The Finance Act, 2020 abolished the earlier Dividend Distribution Tax system for dividends declared, distributed or paid on or after 1 April 2020. Under the earlier framework, the domestic company generally paid DDT and specified dividend income was exempt in the shareholder's hands. Under the present classical system, the company does not pay DDT and dividend is generally taxed in the hands of the recipient.
| Issue | Old DDT regime | Present regime |
|---|---|---|
| Who bore the principal dividend tax? | Domestic company through DDT | Recipient/shareholder |
| Section 10(34) exemption | Generally available for qualifying old-regime dividends | Not available for post-1 April 2020 dividends |
| Section 115BBDA ₹10 lakh threshold | Relevant for specified old-regime dividends | Not relevant to post-1 April 2020 dividend taxation |
| TDS | Not part of the normal exempt-dividend framework | Applicable where the withholding provisions are attracted |
At What Rate Is Dividend Income Taxed?
For a resident individual, dividend is generally included in total income and taxed at the income-tax rates applicable to that individual. There is no general standalone 10% tax rate merely because the receipt is dividend income. Different provisions can apply to companies, firms, LLPs, trusts, non-residents, NRIs, foreign companies and Foreign Portfolio Investors.
No Expense Deduction Against Dividend Income from 1 April 2026
For years before the Finance Act, 2026 change, interest expenditure attributable to dividend income was allowed subject to a ceiling of 20% of gross dividend income under the applicable law. From tax year 2026-27 onwards, Section 93 has been amended so that no expenditure is deductible against dividend income or specified mutual-fund/unit income taxable under "Income from other sources".
TDS on Dividend
For payments or credits on or after 1 April 2026, the TDS provisions of the Income-tax Act, 2025 apply. Section 393 governs tax deduction at source on specified payments to residents. Dividend paid by a domestic company to a resident is generally subject to TDS at the statutory rate and threshold prescribed in the provision, subject to applicable exceptions.
TDS is only collection of tax in advance. The recipient must still disclose the dividend income in the income-tax return and claim credit for tax deducted, subject to the applicable tax law.
Dividend from a Foreign Company
Dividend received from a foreign company by an Indian resident is generally taxable in India, subject to the Income-tax Act, 2025 and any applicable Double Taxation Avoidance Agreement. Foreign tax credit may be available where tax has been paid overseas, subject to the prescribed conditions and documentation.
Dividend Received by a Domestic Company
Where one domestic company receives dividend from another domestic company, the anti-cascading provisions should be examined. The legacy Income-tax Act, 1961 contained Section 80M, permitting a deduction subject to specified conditions where dividend received by a domestic company was subsequently distributed within the prescribed period. For current years, the corresponding provision under the Income-tax Act, 2025 should be applied for the relevant tax year.
Dividend from Mutual Funds
The earlier exemption for specified mutual-fund distributions under Section 10(35) was withdrawn for income received on or after 1 April 2020. Distributed income from mutual-fund units is therefore not automatically exempt merely because it is received from a mutual fund. The specific nature of the receipt and provisions applicable to the unit holder must be considered.
Deemed Dividend
The statutory concept of "dividend" is wider than an ordinary distribution declared by a company. Depending on the facts and statutory conditions, it can include distributions involving accumulated profits, release of assets, certain distributions on liquidation or reduction of capital, and certain loans or advances by closely held companies to specified shareholders or concerns.
When Is Dividend Taxable?
The relevant tax treatment depends on the date and nature of the dividend and the law applicable to the tax year. The major dividing point for the DDT reform is 1 April 2020. A further legislative transition occurred on 1 April 2026, when the Income-tax Act, 2025 became applicable.
Important Changes at a Glance
| Particular | Position from 1 April 2026 |
|---|---|
| Dividend Distribution Tax | Abolished for post-1 April 2020 dividends |
| Dividend in shareholder's hands | Generally taxable |
| Head of income | Income from other sources under Section 92, subject to specific rules |
| General ₹10 lakh exemption/threshold | Not applicable to present dividend taxation |
| Expense deduction | No deduction against dividend income under amended Section 93 |
| TDS on resident dividend | Section 393 applies where the statutory conditions are met |
| Foreign dividend | Generally taxable for an Indian resident; DTAA/foreign tax credit may apply |
Official References
Income Tax Department - Section 92, Income from Other Sources
Income Tax Department - Income-tax Act, 2025 as amended by Finance Act, 2026
Income Tax Department - Section 393, Tax Deduction at Source
Income Tax Department - Budget 2026 FAQ on Dividend Interest Deduction
Frequently Asked Questions
Is all dividend income taxable after 1 April 2020?
Dividend is generally taxable in the hands of the recipient under the post-DDT regime, subject to any specific exemption, special-rate provision, residential-status rule or treaty provision that applies.
Is the old ₹10 lakh rule still applicable?
No. The old Section 115BBDA threshold belonged to the earlier DDT/exemption framework and is not the basis for taxing dividends received under the post-1 April 2020 regime.
Can I deduct interest paid on money borrowed to buy dividend-paying shares in 2026-27?
Not against dividend income taxable under "Income from other sources". The Finance Act, 2026 amendment removes the earlier interest deduction from tax year 2026-27 onwards.
Does TDS mean the dividend has been fully taxed?
No. TDS is tax collection at source. The recipient must report the dividend in the return and determine the final tax liability under the applicable provisions.
Related Income-Tax Pages
- Budget 2020 highlights
- Income Tax Rates Financial Year 2019-2020, Assessment Year 20-21 in India
- Income Tax Rates in India FY 2018-19 AY 2019-20
- TDS Rate in India for Financial Year 2018-19 AY 2019-20
- NRI Payment TDS Rates FY 2018-19
- Income Tax Slabs and Rate FY 2017-2018
- TDS Rate FY 2017-18, AY 2018-2019
- India Income Tax Rates and Tax FY 2016-17
- Income Tax Exemptions for FY 2016-17
- TDS Rates FY 2016-17 AY 2017-18
- World Tax Rates, Slabs - FY 2016-2017
- Deposit TDS on Sale of Property Form No. 26QB