For many years, when a company like Reliance or TCS sent you a dividend, you didn’t have to worry about taxes because the company had already paid a Dividend Distribution Tax (DDT). But that’s now ancient history. Since 2020, India has moved to a system where the company sends you the full amount, and you are responsible for paying the tax. As we move through 2025-2026, there have been some fresh updates, especially regarding how much tax is cut before it hits your bank account. If you’re an investor with Motilal Oswal, understanding these small shifts can help you plan your cash flow much better.

The Big Switch: No More DDT

In the old days, companies paid about 20.5% tax (including surcharge) before giving you your share. Today, that's over.

Who pays now? The shareholder (you).
How much? It’s added to your Income from Other Sources and taxed at your regular income tax slab rate (whether that's 5%, 20%, or 30%).
Why the change? The government felt the old way was unfair to small investors in lower tax brackets who were indirectly paying a high 20% tax through the company.

New TDS Rules for 2025-2026

Since you are now responsible for the tax, the government wants to make sure it gets its cut early. This is done through Tax Deducted at Source (TDS).

The Relief Update: Starting April 1, 2025, the government increased the TDS threshold.

Old Rule: Companies cut 10% TDS if your total dividend for the year was more than ₹5,000.
New Rule (2025-26): TDS is only cut if your total dividend from a single company or mutual fund exceeds ₹10,000 in a financial year.

Category

TDS Rate

Condition

Resident Individual

10%

If dividend > ₹10,000

No PAN Provided

20%

Regardless of the amount

NRI Shareholders

20%*

Plus surcharge and cess

*NRIs can often lower this 20% rate if India has a tax treaty (DTAA) with their country of residence.

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Can You Deduct Any Expenses?

Usually, you can't deduct business expenses from your dividend income, but there is one exception under Section 57:

If you borrowed money to buy the shares, you can deduct the interest you paid on that loan.
The Limit: This deduction is capped at 20% of your total dividend income for that year.
Example: If you earned ₹1 Lakh in dividends but paid ₹30,000 in interest on a loan used to buy those shares, you can only deduct ₹20,000.

How to Avoid TDS (Form 15G/15H)

If your total income for the year is below the basic exemption limit (e.g., ₹7 Lakh or ₹12 Lakh depending on your regime), you shouldn't be paying TDS at all.

Solution: Submit Form 15G (for those under 60) or Form 15H (for senior citizens) to the company or your DP (like Motilal Oswal) at the start of the year. This tells them: Hey, I don't owe any tax, so please don't cut my TDS.

Also read: Understanding Form 15G and Form 15H | How do I submit Form 15G/H?

Summary Table: Dividend Tax at a Glance

Feature

Details for FY 2025-26

Who is liable?

The Shareholder / Investor

Tax Rate

Your applicable Income Tax Slab

TDS Threshold

₹10,000 per company/fund

Mutual Funds

Taxed exactly like equity dividends

Foreign Dividends

Taxed at slab rates (Foreign Tax Credit can be claimed)

Conclusion

The death of DDT was a win for smaller investors but a bit of a headache for high-earners, who now pay up to 30% tax on once tax-free dividends. The 2025 update, increasing the TDS limit to ₹10,000, is a nice touch for retail investors, as it keeps more cash in your pocket during the year. Just remember: even if a company doesn't cut TDS because you earned only ₹8,000, you still have to report that income in your ITR and pay tax on it if you're above the exemption limit!

Frequently Asked Questions (FAQs)

Is dividend from a Mutual Fund also taxable?

Yes. Whether it’s an equity fund or a debt fund, any IDCW (Income Distribution cum Capital Withdrawal) is taxed just like a stock dividend.

I received ₹8,000 as dividend. Why was no tax cut?

Because of the new 2025 rule, companies only cut TDS if the amount is over ₹10,000. You still owe tax on it, but you'll pay it yourself during ITR filing.

What happens to the 10% TDS already cut?

It will show up in your Form 26AS and AIS. You can claim this amount as a credit against your total tax bill when you file your return.

Are dividends from foreign companies (like Apple or Google) taxable?

Yes, they are taxable in India at your slab rate. If the US government cut tax there, you can claim a Foreign Tax Credit (FTC) in India to avoid paying twice.

Can I save tax by choosing the Growth option in Mutual Funds?

Yes! In the Growth option, you don't get dividends. Instead, the value of your investment grows, and you only pay Capital Gains Tax when you sell, which is often lower than your income tax slab.

Do I have to pay Advance Tax on dividends?

Yes. If your total tax liability for the year (including dividends) is over ₹10,000, you should pay advance tax in quarterly installments to avoid interest penalties.

Is there a surcharge on dividend income?

Yes, but the government has capped the surcharge on dividend income at 15%, even if your total income is very high.

What if I forgot to submit Form 15G?

If the company has already cut TDS, you can't get it back from them. You’ll have to file your ITR and claim it as a refund from the Tax Department.

Is dividend income considered Business Income?

Generally, no. It is considered Income from Other Sources. It's only business income if you are a professional trader who holds shares as stock-in-trade.

How do I check how much dividend I earned last year?

The easiest way is to check your AIS (Annual Information Statement) on the Income Tax portal or download the consolidated tax report from your broker.

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