Dividend income refers to the income received by a shareholder from a company out of its profits. Under Indian tax laws, it is taxed under the head “Income from Other Sources” unless specifically exempted.
Section 8 of the Income Tax Act, 1961 provides guidance on how dividend income should be treated in the hands of the recipient.
✅ 2. Applicability of Section 8
Section 8 applies to:
🔹Individual shareholders
🔹HUFs, Firms, Companies, Trusts, and AOPs/BOIs
🔹Residents and Non-residents
🔹All taxpayers receiving dividend from Indian companies
Provision of Section 8
As per Section 8, any dividend declared, distributed, or paid by a company shall be deemed to be the income of the previous year in which it is declared, distributed, or paid, whichever is earlier.
This means:
🔹 Dividend income is taxable in the year it is declared or distributed or paid — whichever comes first.
Taxability of Dividend Income (Post Finance Act 2020)
🔹Before FY 2020–21
Dividend was exempt under Section 10(34), and companies paid Dividend Distribution Tax (DDT) under Section 115-O.
🔹After FY 2020–21
DDT abolished. Now, dividends are taxable in the hands of the recipient as per applicable slab rates.
Amendments till Budget 2025
🧾 Finance Act 2020:
🔸Abolished DDT (Dividend Distribution Tax) under Section 115-O.
🔸Made dividend income taxable in hands of shareholders from AY 2021–22.
🔸Re-introduced TDS on dividends under Section 194 (for residents) and Section 195 (for non-residents).
🧾 Finance Act 2021 & 2022:
🔸No major change to dividend taxation under Section 8.
🔸Clarified that advance tax liability will arise on dividend income only when it is declared, unless already known or anticipated.
🧾 Finance Act 2023 & 2024:
🔸Introduced reporting changes in ITR forms, especially for residents earning dividend income from foreign companies.
🔸Introduced TDS u/s 194LBA and 194K for dividends from business trusts and mutual funds.
🧾 Budget 2025:
🔸No structural change to Section 8, but updated disclosures in ITR and enhanced scrutiny for dividend payments to related parties.
🔸Introduced additional TDS compliance for dividends paid by startups and unlisted companies.
Deduction for Expenses (Section 57)
🔸Only interest expense is allowed as deduction for earning dividend income, up to a maximum of 20% of such dividend income.
❌ No other expenses (e.g., collection charges, demat charges, etc.) are allowed.
ITR Reporting of Dividend Income (AY 2025–26)
🔹Disclose dividend income under Schedule OS (Income from Other Sources).
🔹Mention TDS in Schedule TDS 1 or TDS 2.
🔹For foreign dividend: Show in Schedule FA.
🔹Provide quarter-wise breakup if opting for advance tax computation.
TDS Provisions on Dividend Income
