In this guide
How dividend income is taxed in AY 2026-27
AY 2026-27 covers income earned from 1 April 2025 to 31 March 2026. The return for this period is governed by the Income-tax Act, 1961, even if it is filed after the Income-tax Act, 2025 came into force on 1 April 2026.
For most resident individual taxpayers, dividends from Indian companies are taxable under Income from Other Sources at the tax rates applicable to their total income. Dividend income is generally not taxed at a separate flat rate. Add it to your other taxable income and calculate tax under the tax regime you use.
The old Dividend Distribution Tax system no longer applies to ordinary dividends. The shareholder is generally responsible for reporting dividend income and paying any final tax due. Tax deducted at source (TDS) by a company or mutual fund is a credit against your tax liability; it does not replace the need to report the income.
What counts as dividend income?
Dividend income can include distributions on equity or preference shares and certain payments treated as deemed dividends under the Act.
Mutual fund distributions, often labelled “IDCW” (Income Distribution cum Capital Withdrawal), are generally reported separately from capital gains. A distribution is not the same as a profit on redemption of units. For redemption-related tax treatment, see TaxClear’s mutual fund capital gains guide for AY 2026-27.
Some investment statements may show distributions with different tax characters. For example, a REIT or InvIT statement may separately identify dividend, interest, rental income or other components. Use the breakdown provided by the trust or fund instead of treating the full credit as ordinary dividend income.
A share buyback can have a different tax treatment from a regular dividend. For a buyback covered by the rules effective from 1 October 2024, see TaxClear’s share buyback tax guide for AY 2026-27.
What tax rate applies to dividends?
Ordinary domestic dividend income received by a resident individual is generally taxed at the applicable slab rate under the selected tax regime. It is added to other taxable income and does not have a separate slab.
The new tax regime is the default regime for AY 2026-27. Its basic slab rates for FY 2025-26 are:
| Taxable income under the new regime | Basic rate |
|---|---|
| Up to ₹4 lakh | Nil |
| Above ₹4 lakh to ₹8 lakh | 5% |
| Above ₹8 lakh to ₹12 lakh | 10% |
| Above ₹12 lakh to ₹16 lakh | 15% |
| Above ₹16 lakh to ₹20 lakh | 20% |
| Above ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Under the old regime, the basic rates for a resident individual below 60 are nil up to ₹2.5 lakh, 5% from ₹2.5 lakh to ₹5 lakh, 20% from ₹5 lakh to ₹10 lakh, and 30% above ₹10 lakh. The basic exemption limit is generally ₹3 lakh for resident individuals aged 60 to 79 and ₹5 lakh for those aged 80 or older.
These are basic rates. Your final calculation may also depend on surcharge, health and education cess, rebate eligibility and other provisions. The old regime is optional, but the rules and deadline for choosing it depend on whether you have business or professional income.
Example: Suppose your other taxable income puts your next rupee in the 20% slab and you receive ₹1 lakh in ordinary domestic dividends. The dividend may add about ₹20,000 to your basic income tax before considering any rebate, surcharge, cess or other adjustments. The actual additional tax depends on your total income and circumstances.
TDS on dividends: Sections 194 and 194K
For a resident recipient, TDS is generally deducted at 10% when the relevant threshold is crossed. The section and threshold depend on the payer and type of distribution.
| Payment | General TDS rule for a resident |
|---|---|
| Dividend paid by an Indian company | Section 194: 10%. No TDS for an individual shareholder if the company’s total dividend paid or likely to be paid to that shareholder during the financial year does not exceed ₹10,000 and payment is made otherwise than in cash. |
| Income from specified mutual fund units | Section 194K: 10%. No TDS if the amount paid or payable during the financial year does not exceed ₹10,000. |
The ₹10,000 thresholds apply from 1 April 2025. They are generally checked separately for each payer, not as one combined allowance across all companies and funds. Once the applicable threshold is crossed, TDS is generally calculated on the payment covered by the provision, not just the amount above ₹10,000.
For company dividends, the ₹10,000 non-deduction threshold is limited to individual shareholders and non-cash payments. Do not assume it applies to every recipient or payment method. Section 194K also does not cover income that is in the nature of capital gains from transferring specified units.
If you have not furnished a valid PAN, a higher TDS rate may apply under the PAN-related rules. Eligible resident taxpayers may submit Form 15G or Form 15H to request non-deduction, provided they meet the form’s conditions. A declaration does not make the dividend tax-free; it concerns TDS. It is not a way for a non-resident to avoid withholding.
Non-resident withholding is different. Dividend payments to non-residents are generally considered under Section 195 and may involve different rates and treaty conditions. See TaxClear’s NRI TDS rates guide if you are filing as a non-resident.
Can you deduct expenses from dividend income?
Interest expense incurred to earn dividend income may be deductible, subject to the statutory limit. The deduction cannot exceed 20% of the dividend income. Other expenses, such as collection charges or investment-management fees, generally cannot be deducted against ordinary dividend income under this rule.
Keep the loan documents and a calculation showing that the borrowing was used to earn the dividend. Do not claim the full interest cost if it exceeds the limit or was not incurred for that purpose. The AY 2026-27 ITR utility checks the interest deduction reported against dividend income.
How to report dividend income in your ITR
Report taxable dividend income in Schedule OS (Income from Other Sources) of the relevant ITR. Report the gross amount, not only the net amount credited after TDS. Claim eligible TDS separately in the TDS schedule, matching the credit information on the e-filing portal.
The correct ITR form depends on your full income and circumstances. Dividend income alone does not automatically require ITR-2:
- ITR-1 may be available to an eligible resident individual who meets the form’s income and other conditions.
- ITR-2 may apply if you have capital gains or another circumstance that makes ITR-1 unavailable, but no business or professional income.
- ITR-3 may apply if you have business or professional income.
- ITR-4 may be available to eligible taxpayers using presumptive taxation, subject to its conditions.
Check the notified AY 2026-27 form and portal utility before filing. TaxClear’s online ITR filing guide for AY 2026-27 explains the filing process.
Reconcile your records before filing
Collect and compare:
- Company, registrar and mutual fund dividend statements.
- Bank, demat and broker statements.
- Form 26AS and AIS information.
- TDS certificates, where issued.
- Details of any interest expense claimed against dividends.
- The income and TDS figures entered in Schedule OS and the TDS schedule.
AIS and Form 26AS are useful checks, but they do not replace your own records. If a dividend is missing from AIS or the TDS credit is incorrect, verify the figures with the payer and correct any reporting error. Do not omit taxable income just because it is missing from an information statement.
Filing dates and practical checks
The due date for AY 2026-27 depends on your filing category. The usual due date for eligible non-audit cases was extended to 31 August 2026. The due date for specified audit cases was extended from 31 October 2026 to 21 November 2026. Check the latest portal notice for your category and any further extension.
As of 26 October 2026, some taxpayers have missed their original due date, while the extended date for specified audit cases has not yet passed. The general deadline for a belated or revised return for AY 2026-27 is 31 December 2026, subject to statutory conditions and any further extension.
Advance tax may apply if your estimated tax payable after TDS and other credits is ₹10,000 or more. TDS on dividends may not cover the final tax at your slab rate. Check your complete tax calculation and any applicable interest instead of treating TDS as the final tax.
Common mistakes to avoid
- Treating TDS as the final tax on dividends.
- Reporting only the net dividend credited after withholding.
- Assuming dividends below the TDS threshold are tax-free.
- Combining different payers’ dividends when checking each payer’s threshold.
- Reporting mutual fund redemption gains as distributions, or distributions as redemption gains.
- Deducting all investment expenses from dividend income.
- Selecting an ITR form based only on dividend income.
- Ignoring the different withholding rules for residents and non-residents.
Frequently asked questions
Are dividends tax-free if no TDS was deducted?
No. The TDS threshold determines whether tax is withheld at source in a particular case. It does not determine whether the income is taxable. Report taxable dividends even if no TDS was deducted.
Is dividend income taxed at a flat rate of 10%?
Usually not for a resident individual receiving ordinary domestic dividends. The 10% rate is generally the TDS rate when withholding applies. Final tax is usually calculated on your total income at the applicable rate.
What if TDS is not reflected in Form 26AS?
Check the payer’s TDS statement and confirm that your PAN details are correct. Ask the payer to correct any reporting error. Claim credit only for the amount reported against your PAN and reflected in your tax-credit records.
Is mutual fund IDCW income a capital gain?
No. A distribution and a gain on redemption are separate income events. Report the distribution separately and calculate capital gains when you transfer or redeem units.
Which ITR form should I use if I received dividends?
It depends on your full income and eligibility. Dividend income alone does not determine the form. Check the AY 2026-27 form conditions, including whether you have capital gains or business or professional income.
Does Form 15G or Form 15H make dividends tax-free?
No. An eligible resident may submit the relevant declaration to prevent TDS, but the dividend may still be taxable and should be reported in the ITR.
