Taxation of dividend income in 2025 - Are dividends still exempt?

• Earlier, dividend income was exempt from any taxes, but now, dividends are taxable in the hands of shareholders.
• Taxation of dividend income follows individual income tax slab rates for residents and 20% (plus surcharge and cess) for non-residents.
• Dividend income exempt under Section 10(35) for mutual funds and Section 12A or 12AA for charitable organisations.

Dividend is the amount a business distributes to a shareholder from its profits. You receive a dividend if you invest in mutual funds , ULIPs, or stocks. Many investors are curious whether or not they will be taxed on dividend income.This write-up will provide a closer look at taxation of dividend income and clarify whether dividend income is exempt from tax. Let's explore the details to understand the tax on dividend income.

Many of us are curious - Is dividend taxable in India ? As of 2024, the tax on dividend income has seen significant changes. Here, we will addressthe taxation of dividend income and outline the key points to help you understand the current tax scenario.

• Prior to April 1, 2020, companies were required to pay Dividend Distribution Tax (DDT) before distributing dividends to shareholders.
• The Finance Act 2020 abolished DDT, shifting the tax burden to the shareholders.

• From April 1, 2020, onwards, dividends are taxed in the hands of the shareholders.
• Is dividend income taxable? - Yes, it is now considered part of the shareholder's total income and taxed accordingly.

• Dividend Distribution Tax (DDT) Abolished:
• Taxable in the Hands of the Shareholder:

Old Taxation System (Before April 1, 2020)

Under the old system, companies were required to pay Dividend Distribution Tax (DDT) before distributing dividends to shareholders.The key features of the old taxation system included -

• Companies paid Dividend Distribution Tax at a rate of 15% (effective rate including surcharge and cess was approximately 20.56%) on the gross amount of dividends.
• Shareholders dividend income was exempted as they received as DDT which was already paid by the company.

New Taxation System (From April 1, 2020) The Finance Act 2020 abolished Dividend Distribution Tax and shifted the tax burden to the shareholders.The key features of the tax exemption on dividend income include the following -

• The tax on dividend income is paid by shareholders.
• The tax rate is based on the individual's applicable income tax slab.
• Companies and mutual funds must deduct TDS at 10% on dividends paid to residents if the total dividend exceeds ₹5,000 in a financial year.
• For non-residents, TDS is deducted at 20% (plus applicable surcharge and cess).

The categories  who are exempted from tax on dividend income are listed below -

• Agricultural Income If you receive a dividend from a company involved in agricultural activities, this dividend is exempt in case of agricultural income.
• Mutual Funds : Suppose you invest in SEBI-registered mutual funds and receive dividends from these investments. In this scenario, your dividend income is dividend income exempt under Section 10(35).
• Specified Companies Companies in certain sectors like renewable energy might offer dividends that are dividend income exempt. You should check if your dividend falls under such specific government notifications.
• Charitable Organisations If you run or contribute to a charitable organisation, any dividends received by the trust, which is registered under Section 12A or 12AA, are dividend income exempt as long as the income is used for charitable activities.
• Non-Resident Shareholders: As a non-resident shareholder, your tax on dividend income might be lower or completely exempt under the DTAA between India and your country of residence.

Also Read: Best Investment Plans To Earn Regular Monthly Income

What is the Taxation of Dividend Income in 2024?

As of 2024, the tax regulations regarding dividends in India have specific guidelines on how tax on dividend income is applied. Below is a table summarising the taxation of dividend income for various categories of taxpayers -

Paying tax on dividend income is essential for staying compliant with tax regulations and avoiding any penalties. This section will guide you on the timeline and important dates related to taxation of dividend income.

• When you receive dividends from your investments, they are considered as part of your taxable income for that financial year.

• 15th June: 15% of the total estimated tax liability
• 15th September: 45% of the total estimated tax liability
• 15th December: 75% of the total estimated tax liability
• 15th March: 100% of the total estimated tax liability

• If your total tax liability for the financial year exceeds ₹10,000, you are required to pay advance tax.
• Dividends are included in the calculation of advance tax. Therefore, any substantial dividend income should be considered while estimating your advance tax liability.
• The due dates for advance tax payments are:

• Companies and mutual funds deduct TDS on dividends if the total dividend paid exceeds ₹5,000 in a financial year.
• The TDS rate is 10% for resident individuals and 20% (plus applicable surcharge and cess) for non-residents.

• You need to report your dividend income while filing your ITR for the financial year.
• The due date for filing the ITR for individuals is 31st July of the assessment year (the year following the financial year).
• While filing the ITR, you should include the details of all dividends received, TDS deducted, and pay any remaining tax liability.

• Receipt of Dividend:
• Advance Tax Payments:
• Tax Deducted at Source (TDS):
• Filing Income Tax Return (ITR):

Keep the following points in mind considering taxation of dividend income -

• Dividends are not dividend income exempt and are part of your taxable income.
• Ensure you calculate and pay advance tax if your tax on dividend income exceeds ₹10,000 in a financial year.
• Verify and claim TDS deductions while filing your ITR to avoid paying double taxes on your share dividend taxable amount.

We started the guide with the question, "Is dividend taxable in India?" and here we have the answer: yes, it is taxable in India. Earlier,dividend income was exempt from tax, but this shift has ensured a fair distribution of the tax burden among investors. Despite this change, there are certain exemptions under sections 10(35) for mutual funds and 12A or 12AA for charitable organisations. With this knowledge and the other key details provided in the guide, we can see how understanding the taxation of dividend income is crucial for financial vigilance and making informed decisions.