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Dividends received by a shareholder are generally taxable in the shareholder's hands. For most resident individuals, they are taxed under the head Income from Other Sources at the applicable slab rate, unless a special provision applies.

Tax treatment for AY 2026-27

For dividends received or accrued during FY 2025-26:

• the gross dividend is normally taxable under section 56;
• section 57 permits only interest expenditure, capped at 20% of the dividend income included in total income; and
• no deduction is allowed for collection charges, demat charges, advisory fees or other expenses against dividend income.

Treatment from Tax Year 2026-27

Under sections 92 and 93 of the Income-tax Act, 2025, dividend income continues under Income from Other Sources. Finance Act, 2026 substituted section 93(2) so that no deduction is allowed for dividend income or specified unit income from 1 April 2026.

TDS on dividends

For FY 2025-26, a domestic company generally deducts TDS at 10% under section 194 when dividend paid to a resident individual exceeds ₹10,000 during the financial year, subject to the statutory method of payment, PAN and declaration rules. A lower or nil deduction may apply where a valid certificate or declaration is accepted.

TDS is not the final tax. A taxpayer in a higher slab may have additional tax, while a taxpayer with lower final liability may claim refund of excess TDS after filing the return.

Foreign dividends

A resident and ordinarily resident taxpayer is generally taxable in India on foreign dividends. The amount should be converted into Indian rupees under the applicable tax rules. If foreign tax was withheld, foreign-tax credit may be available under the relevant tax treaty or unilateral-relief provision, subject to filing Form 67 and maintaining proof of foreign income and tax.

How to report dividend income in the ITR

1. Enter the gross dividend in Schedule OS, not the net amount after TDS.
2. For AY 2026-27, enter eligible interest expense separately and restrict it to 20% of dividend income.
3. Claim Indian TDS in the TDS schedule after matching Form 26AS and AIS.
4. For foreign dividends, complete Schedule FSI, Schedule TR and Schedule FA where applicable, and file Form 67 within the prescribed timeline for foreign-tax credit.
5. Review quarter-wise dividend reporting fields if required by the notified ITR form for interest computation.

Example

An individual receives domestic dividend of ₹1,00,000 and pays ₹30,000 interest on money borrowed to acquire the shares.

• AY 2026-27: maximum deduction is ₹20,000, so taxable dividend is ₹80,000.
• Tax Year 2026-27: section 93(2) permits no deduction, so the full ₹1,00,000 is taxable.

Common mistakes

• Reporting dividend net of TDS.
• Claiming the entire portfolio-management or demat expense.
• Applying the AY 2026-27 20% interest rule to dividends earned after 1 April 2026.
• Ignoring foreign dividends because the money remains abroad.
• Claiming foreign-tax credit without Form 67 or supporting evidence.

Conclusion

Dividend reporting requires a gross-income and TDS reconciliation. The year of income is especially important because the limited interest deduction available for AY 2026-27 is removed for Tax Year 2026-27.