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Understanding Tax on Dividend Income in India

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Created on
July 9, 2022


What’s Inside

Dividend taxes in India have changed a lot recently. A dividend distribution tax is a cost added to profits that Indian companies give to their shareholders or investors. The tax is based on the rules in the income tax law before the company gives out profits as dividends.

In this blog, we explore whether dividend income is taxable or not, what the tax on dividend income is like, and what the rates for dividend income are.

What are Dividends?

Dividends are payments that companies make to their shareholders from profits or retained earnings. Companies have the choice of using their profits to reinvest in the company or distributing a part of it to their shareholders as dividends.

Dividends are usually paid in cash, but they can also come in the form of additional stock shares or other assets.

Types of Dividends

To understand the tax on dividend income, first, let's understand the two broad types of dividends:

1. Final Dividend

A final dividend is the last payment made by a company for a financial term. It's typically paid at the end of the company's fiscal year and is based on the company's profits, cash flow, retained earnings, and dividend practices.

2. Interim Dividend

Companies may declare and pay interim dividends during a financial year, before finalising their accounts and when they have enough earnings or extra cash to distribute to shareholders before the end of the fiscal year.

Rules for Taxation on Dividend Income in India

Starting Assessment Year 2021-22, domestic corporations no longer need to pay dividend distribution tax on declared, distributed, or paid dividends. This is a significant change from the previous requirement of paying the tax on all dividends. The new legislation relieves companies of this specific tax obligation and modifies the tax law accordingly.

Tax Rates on Dividend Income | 2023-24

This table shows dividend tax rates based on the assessee and distribution method.

Category of Assessee

Dividend Nature

Rate of Tax


Dividend received from a domestic company

The normal rate of tax applicable to the assessee


Dividend on GDR of Indian companies/PSU (purchased in foreign currency)



Dividend on shares of Indian companies (purchased in foreign currency)



Any other dividend income



Dividend on securities other than 115AB


Investment Division of the offshore banking unit

Dividend on securities other than 115AB


Percentage of Indian Dividends that are taxed

TDS (Tax Deducted at Source) on Dividend Income

The company or the mutual fund house that pays your dividends is responsible for deducting TDS on the dividend amount before it is paid out.

For Indian Resident

TDS is deducted at the rate of 10% for dividend income above ₹5,000. For example, if you earn ₹10,000 in dividends, your net income after TDS deduction will be ₹9,000.

For Non-resident Individual

For any dividend income paid out, TDS will be deducted at the rate of 20%. This is also subject to the provisions of the relevant DTAA.

TCS (Tax Collected at Source) on Dividend Income

Here are some important updates about the TCS for the financial year 2023-24:

  • For international remittances under the Liberalised Remittance Scheme (LRS), the TCS rate has increased from 5% to 20%, with no minimum threshold.
  • This includes medical, education, and other purposes (including investing abroad)

Comparing the Old vs New Tax on Dividend Income



Exemption Until March 31, 2020 (FY 2019-20)

Prior to March 31, 2020 (FY 2019-20), dividends obtained from Indian companies enjoyed a tax exemption in the hands of investors/shareholders. This exemption stemmed from the fact that companies distributing dividends were already obligated to pay Dividend Distribution Tax (DDT) before disbursing payments to shareholders.

Transformation in Dividend Taxation (Effective April 1, 2020)

The Finance Act of 2020 initiated a significant shift in the taxation of dividends. Commencing on April 1, 2020 (FY 2020-21), all dividends received from Indian companies are now subject to tax in the recipient's hands. Consequently, individuals, Hindu Undivided Families (HUFs), and firms are now liable for taxing the dividends they receive.

Elimination of DDT Responsibility for Companies and Mutual Funds

As the dividend taxation structure evolved, the responsibility for paying Dividend Distribution Tax (DDT) by companies and mutual funds was revoked. Instead, the dividend tax burden shifted to the individual, HUF, or firm receiving the dividend income.

Abolishment of the 10% Tax on Dividend Receipts Exceeding ₹10 Lakh

Additionally, the Finance Act of 2020 eliminated the provision for taxing dividend income received by resident individuals, HUFs, and firms at a flat rate of 10% when the dividend income exceeded ₹10 lakh (Section 115BBDA). Consequently, no fixed tax rate is imposed on dividend income exceeding ₹10 lakh; it is now taxed in accordance with the individual's applicable income tax slab rates.


There have been plenty of changes in the tax on dividend income in India. Now, local companies don't need to pay tax on their dividends. But everyone still has to pay tax on their dividend income. If you make less than ₹5,000 in dividends for the year 2021-2022, you don't have to pay tax. It's important to know the latest rules and rates for dividend taxes if you want to invest smartly. You should also learn about the different types of dividends and how much tax you have to pay on them. The company or fund that pays you the dividends will take out some tax, called TDS, before you get your money.

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Frequently Asked Questions

1. Is dividend income taxable or not?

Yes, all dividend income you receive in India is subject to taxation. You will need to pay tax on your dividend income according to the income tax rates that apply to you.

2. What amount of dividends are tax-free in India?

For the financial year 2021-2022, you can receive up to ₹5,000 in dividend income in India without being taxed. Any dividend income you receive beyond this limit will be taxed according to the applicable tax rates and regulations.

3. Is dividend taxable in India in 2023?

Yes, all the dividend income you receive in India is taxable, including the dividends you receive from mutual fund investments and direct equity investments.

4. What is the exemption limit for dividend income?

Individuals and Hindu Undivided Families (HUFs) are exempt from paying taxes on dividends up to a certain limit in India. For the financial year 2021-2022, the exemption limit for dividend income in India is ₹5,000.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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