Taxation of Dividend Income in India (2025) – Slab Rates, TDS & Case Study

Learn how dividend income is taxed in India post-2020. Includes slab-wise tax rates, TDS rules, deductions under Section 57, and a real case study for better tax planning.

---

🔎 What is Dividend Income?

Dividend income is the return received by shareholders from a company’s profits. It is distributed in proportion to the number of shares held.

---

💼 How is Dividend Income Taxed in India?

As per the Finance Act, 2020, dividend income is fully taxable in the hands of shareholders under the head “Income from Other Sources”.
Previously, dividends were exempt under Section 10(34) up to ₹10 lakh, and companies paid Dividend Distribution Tax (DDT). But from FY 2020-21 onwards, DDT is abolished and shareholders pay tax directly.

 

📊 Tax Rate on Dividend Income

Taxpayer Type	Tax Rate
Resident Individual	As per slab rates
Domestic Companies, LLPs	As per applicable flat rate
Non-Resident Indians (NRIs)	20% under Section 115A (plus cess/surcharge), DTAA applicable

---

💸 Is TDS Deducted on Dividend Income?

✅ Yes. Under Section 194, TDS is deducted at:

• 10% if dividend exceeds ₹5,000 per company annually
• 20% if PAN is not furnished
• 20% for NRIs under Section 195 (subject to DTAA with Tax Residency Certificate)

---

🔍 Can I Claim Any Deduction on Dividend Income?

While no standard deductions are available, you can claim:

➡️ Interest expenses incurred for earning the dividend income – up to 20% of the dividend received (under Section 57(i)).

---

🧾 Practical Case Study: Tax Planning for Dividend Income

👤 Mr. Rajesh – A Senior IT Professional

Detail	Value
Age	42
Annual Salary	₹25,00,000
Loan Taken	₹5,00,000 @ 10% interest
Dividend Received	₹1,50,000 (FY 2024-25)

Q1. How much dividend is taxable?
💡 Full ₹1,50,000 is taxable under Income from Other Sources.

Q2. Can he claim a deduction?
Yes.

• Interest Paid = ₹50,000
• Deduction Allowed = Lower of ₹50,000 or 20% of ₹1,50,000 = ₹30,000
  ✅ Taxable Dividend = ₹1,20,000

Q3. What TDS is applicable?

• TDS @10% on ₹1,50,000 = ₹15,000 deducted under Section 194

Q4. How to report in ITR?
Use ITR-2, under Income from Other Sources. Cross-check with AIS and Form 26AS.

Q5. Could he reduce tax further?
Yes, with strategies like:

• Delaying share purchase to next FY
• Investing via a family LLP or private company
• Using hybrid mutual funds or LTCG-friendly investments

---

🧾 Summary: Pre vs. Post 2020 Taxation of Dividends

Feature	Before FY 2020-21	After FY 2020-21
Taxability	Exempt up to ₹10 lakh	Fully taxable
Who Pays Tax	Company (via DDT)	Shareholder
DDT	15% + SC + Cess	Abolished
TDS	Not applicable	Yes @ 10%
Expense Deduction	Not allowed	Allowed (Interest up to 20%)

---

💼 Smart Tax Planning Ideas for Dividend Income

Strategy	How It Helps
🧾 Avoid Clubbing	Don’t gift shares to family – clubbing rules apply
👨‍👩‍👧‍👦 Use Family Members	Hold shares in names of lower-tax individuals (legally)
🏦 Invest via LLP/Company	Corporate structures may allow efficient taxation
📚 Claim Interest	Keep records of loans used for investment
🌍 Use DTAA	NRIs can claim lower TDS via TRC

---

📌 FAQ: Taxation of Dividend Income in India

❓ Is dividend income exempt from tax?

No. As per the Finance Act, 2020, dividend income is fully taxable in the hands of shareholders.

❓ What is the TDS limit for dividend income?

TDS applies @10% if dividend exceeds ₹5,000 per company annually.

❓ Can I claim expenses against dividend income?

Only interest expense is allowed under Section 57, capped at 20% of the dividend income.

❓ Where do I report dividend income in ITR?

Report it under Income from Other Sources in ITR-2, and match it with your AIS & Form 26AS.