Taxation of dividend

“The four most dangerous words in investing are: ‘this time it’s different.’” - Sir John Templeton

Muskan: Hey, you know what, I again purchased shares of PNB and received a dividend this time.

Shrutika: Wow! How do you plan to use the money?

Muskan: I am definitely spending it on shopping!

Shrutika: Hold non, I hope you are aware of the tax implications on dividends received.

Muskan: What tax? No, can you brief me about it before I fall into any trap?

Shrutika: Yes, sure!

So, for many investors like Muskan, dividend is an important factor before they invest in a company.

Earlier till FY 2019-20, the tax dividend (DDT) income was paid by the company (domestic) declaring the dividend, thus making the dividend income exempt in the hands of the investor.

FY 2020-21 onwards for dividends of domestic companies,

  1. DDT was abolished and hence the dividend is now taxed in the hands of the investor.
  2. TDS at 10% was introduced if the dividend income exceeded ₹5000

What does this mean?

This means, dividend income (including foreign dividends) is now taxable in the hands of the investor and should be reported under the “Income from Other Sources” head.

Since the income is taxable in the hands of the shareholder, TDS would be applicable. TDS at 10% would be deducted u/s 194 & 194K when a domestic company distributes dividends to residents if the amount exceeds ₹5000.

A few points to consider:

  • You cannot claim expenses such as commission or salary incurred to earn a dividend income. However, you can only claim interest expense incurred to earn a dividend(including foreign dividend) income upto 20% of the total dividend income.
  • If your annual income is estimated to be less than the basic exemption limit, then you can submit Form 15G/15H to the company to claim a dividend without TDS.
  • The provisions of advance tax still apply. Meaning, if your tax liability exceeds ₹10,000 in a financial year, you will be required to pay advance tax. If there is a shortfall in the advance tax installment or you have not paid the same on time on account of dividend income, only then, no interest u/s 234C will be charged, provided you have paid full tax in the subsequent installments.
  • In case you’re an NRI, TDS at 20% will be deducted irrespective of the dividend amount, subject to DTAA, if any.

Let’s understand with a few examples.

  1. Mr. Akash, an Indian resident, received a dividend of ₹15,000 from TATA Motors on 15 June 2022. He also has a profession income of ₹20 lakhs per annum. What are the tax implications?

In this case, since the dividend exceeds ₹5000, hence TDS will be deducted at 10%. So, Akash will receive ₹13,500 as a dividend from TATA Motors. Since his tax liability exceeds ₹10,000 (including IFOS & profession income) in FY 2022-23, he will be required to pay advance tax.

  1. Jayni, an NRI, borrowed money to invest in the equity shares of Adani Power and paid interest of ₹ 2900 during FY 2021-22. She had received a dividend income of ₹6500 in that year. What are the tax implications?

In this case, she will receive ₹5200 as dividend after deducting 20% TDS from the dividend income. She can claim a maximum of ₹1300 (20% of 6500) as the interest expense while reporting her dividend income under IFOS.

1 Like


I am an F&O Trader and also derive income from interest on deposits, rent and dividends. I understand that F&O trading income is reported as business income and the rest are reported as income from other sources. Since all these attract tax at the individuals’ slab rates, can I aggregate these and claim expenses incurred in F&O trading, and pay tax on the net, even if the trading activity resulted in a loss?

Hi @gdshan

FnO is a non-speculative business income, taxed under Income from Business & Profession, interest on deposits & dividends are taxed under IFOS and rental income is taxed under Income from House Property.

Yes, true, all the incomes are taxed at the slab rates, but set off and carry forward of loss under different income heads have different rules.
You can set off your FnO losses in the current year against all incomes except salary and pay tax on the income after setting off. In future years, it can be set off against business income (both speculative and non-speculative). The loss can be carried forward for 8 years.

Hope this helps.

Hi. I’ve dividend from few equities. On 5k plus dividend amount, TDS is credited and is seen in Form 26AS as well as IAS. But for lesser dividend amount, there’s no TDS. Is it mandatory to declare sum of all non-TDS credited dividend and under what head it should be reported?

Hi @msachin

Any dividend income earned during the financial year should be reported, irrespective TDS has been deducted or not. Dividend income is reported under the “IFOS” head and taxed at the applicable slab rate.

Hi @Shrutika_Shah

Is the above applicable only if loss on F&O business still exists for that year after setting off against all incomes except salary?

Hi @gdshan

Yes, FnO losses in the current year can be set off against all incomes except salary. If still, any losses remain, it can be carried forward for 8 years after set off.