Dividend Income Tax in India 2026: Slab Rate, 10% TDS Above ₹10,000 and the 20% Interest Deduction Cap

By Nitish Bharadwaj · Published Sep 28, 2026 · 7 min

Since April 2020, dividends from Indian companies and mutual funds are taxed in your hands at your income tax slab rate, in both regimes. A company deducts 10% TDS once it pays you more than ₹10,000 in a financial year, a threshold raised from ₹5,000 from April 2025. That TDS is only an advance, so you may owe more or get a refund. You can deduct interest on money borrowed to buy the shares, capped at 20% of the dividend. Surcharge on dividends is capped at 15%.

A company announces a ₹20 dividend, you hold 1,000 shares, and ₹18,000 lands in your bank account instead of ₹20,000. The missing ₹2,000 is TDS, and it is not the end of the story. Depending on your slab, you may owe more when you file your return, or get some of it back. Here is how dividends are taxed for FY 2025-26, the year you file for now, and for tax year 2026-27 under the new Income-tax Act.

Dividends Are Taxed at Your Slab Rate

Until March 2020, companies paid Dividend Distribution Tax and dividends up to ₹10 lakh were tax-free for you. The Finance Act 2020 scrapped that. Since April 1, 2020, dividends from Indian companies and mutual fund IDCW payouts are added to your income under 'income from other sources' and taxed at your slab rate. This applies under both the old and the new regime.

Unlike listed-equity capital gains, there is no special rate and no ₹1.25 lakh exemption. A person in the 30% slab pays about 31.2% on dividends after the 4% cess, while the same person pays 12.5% on long-term gains from selling shares. For high earners, that is the main reason growth options often beat dividend payouts.

The figures include the 4% cess but not surcharge. For income above ₹50 lakh, surcharge on dividend income is capped at 15%, even where your salary attracts a higher rate.

TDS: 10% Once You Cross ₹10,000 From One Company

A company must deduct 10% TDS from dividends paid to a resident if the total it pays you in a financial year exceeds ₹10,000. Budget 2025 raised this threshold from ₹5,000 with effect from April 1, 2025. Mutual funds follow the same ₹10,000 limit on IDCW payouts; our guide to TDS on mutual fund dividends covers the fund side.

• The threshold is per company, per financial year. ₹8,000 each from five companies means no TDS at all, even though you received ₹40,000.
• If your PAN is missing or inoperative because it is not linked to Aadhaar, TDS rises to 20%.
• If your total income is below the taxable limit, submit Form 15G, or Form 15H if you are 60 or older, to the company's registrar before the record date to avoid TDS.
• TDS is an advance payment. It shows in Form 26AS and your AIS, and you claim credit for it in your return.

Our Form 15G and 15H guide explains who is eligible. Filing one when your income is actually taxable is a false declaration, so do not use it just to delay tax.

When the ₹12 Lakh Rebate Wipes Out the Tax

Because dividends are taxed at slab rates, they qualify for the Section 87A rebate. In the new regime for FY 2025-26, a resident individual with total income up to ₹12 lakh pays no tax. A retiree with ₹6 lakh of pension and ₹3 lakh of dividends therefore owes nothing, even if a company deducted TDS.

That TDS comes back only if you file a return and claim the refund. This is different from capital gains taxed at special rates, where the rebate is restricted. Our guide to the 87A rebate and capital gains explains that difference.

The Only Deduction: Interest, Capped at 20%

You can deduct interest paid on money borrowed to buy the shares or units, such as a loan against shares or a margin facility. The deduction cannot exceed 20% of the gross dividend income. No other expense is allowed: not demat charges, not advisory fees, not a portfolio management fee. This deduction is available in both regimes.

Advance Tax: Relief for Unpredictable Dividends

If your total tax due after TDS is ₹10,000 or more, you must pay advance tax in instalments. Dividends are hard to predict, so the law gives relief. You are not charged interest for a shortfall in an earlier instalment caused by dividend income, as long as you pay the tax on it in the remaining instalments after the dividend is declared. The one exception is deemed dividend, such as certain loans from a closely held company.

To get this relief, the return asks for a quarter-wise break-up of dividend income in Schedule OS. Our guide to advance tax payment rules covers the instalment dates.

NRIs: 20% TDS, Lower Under a Tax Treaty

For non-residents, companies deduct TDS at 20% plus surcharge and cess, with no ₹10,000 threshold. If India has a tax treaty with your country of residence, the treaty rate is often 10% or 15%. To get it, give the company a Tax Residency Certificate, Form 10F and a declaration that you have no permanent establishment in India. If excess tax was deducted, you can claim the refund by filing an Indian return.

Reporting Dividends in Your Return

1. Download your AIS and Form 26AS and list every dividend credited, with the TDS deducted.
2. Report the gross dividend, before TDS, under income from other sources, with the quarter-wise break-up.
3. Claim the interest deduction if you borrowed to invest, within the 20% cap.
4. Claim TDS credit for every company. Missing entries usually mean a PAN mismatch with the registrar.

Small mismatches between your records and the AIS are common for dividends because registrars report on payment dates. Our guide to reconciling Form 26AS and AIS shows how to fix them before you file.

Dividends are simple income taxed the plain way. If you are in a high slab and do not need regular cash flow, growth-oriented holdings keep more of your returns. If your income is below the rebate limit, dividends cost you nothing in tax, as long as you file a return to recover any TDS.