Taxability of Dividend Income

• Dividend income received by shareholders from Indian companies is taxable in the hands of the investor.
  
• It is classified under the head “Income from Other Sources”.
  
• The entire dividend amount is added to the total income of the taxpayer.
  
• The company paying the dividend is not required to deduct dividend distribution tax (DDT).
  
• Tax is payable as per the applicable income tax slab rate of the recipient.
  

TDS on Dividend Income

• If the dividend paid by a company exceeds ₹5,000 in a financial year, tax is deducted at source (TDS).
  
• The rate of TDS is 10% for resident individuals, subject to PAN availability.
  
• If PAN is not provided, TDS is deducted at 20%.
  
• For non-residents, TDS is deducted at a higher rate as per applicable tax treaties or domestic law.
  
• TDS credit can be claimed while filing the income tax return.
  

Exemptions and Deductions

• No specific exemption is available for dividend income from domestic companies.
  
• However, deduction of interest expense under Section 57 is allowed, limited to 20% of dividend income.
  
• No other deductions such as commissions or administrative costs are permitted.
  
• Dividend received from mutual funds and foreign companies is also taxable.
  
• Foreign dividend may also be subject to Double Taxation Avoidance Agreement (DTAA).
  

Tax Treatment for Companies and Firms

• For companies and partnership firms, dividend income is added to business income if relevant.
  
• Tax is paid at the applicable corporate or firm rate.
  
• Foreign companies earning dividend from Indian subsidiaries may be eligible for DTAA relief.
  
• Such income must be disclosed in the return of income.
  
• TDS provisions also apply to company and firm shareholders.
  

Reporting and Compliance

• Dividend income must be reported in the Annual Information Statement (AIS) and Form 26AS.
  
• Taxpayers must ensure all dividend income is correctly declared in their ITR.
  
• Advance tax provisions may apply if dividend income significantly increases tax liability.
  
• Accurate disclosure avoids notices or reassessments.
  
• Filing within the due date and claiming TDS credit ensures proper tax compliance.