Dividend Income Taxation Rules in 2025 and How to Report in ITR
- Rashmita Choudhary
- Nov 5
- 11 min read
Dividend income taxation in India for FY 2024–25 (AY 2025–26) continues under the Income Tax Act, 1961, with key refinements introduced in Budget 2025. The TDS threshold for dividends has been raised to ₹10,000, and new compliance guidelines ensure smoother and more transparent reporting. Since the abolition of Dividend Distribution Tax, the responsibility for paying tax on dividends now lies with investors. Understanding how to compute and report dividend income correctly in your Income Tax Return is essential to avoid discrepancies or notices from the Income Tax Department.
Table of Contents
Understanding Dividend Income Taxation in FY 2024–25
Dividend income continues to be taxed in the hands of the investor after the abolition of the Dividend Distribution Tax (DDT) by the Finance Act, 2020. For FY 2024–25 (AY 2025–26), dividends received from domestic companies, mutual funds, or foreign corporations are taxable under the head “Income from Other Sources.” The tax rate applicable depends on the individual’s total income and corresponding tax slab. There is no exemption threshold—meaning every rupee of dividend income is taxable. Dividends from foreign companies are also taxable in India, but taxpayers can claim a foreign tax credit if taxes were deducted abroad.
Key Provisions Under the Updated Dividend Tax Rules 2025
The Union Budget 2025 refined several compliance rules related to dividend income. One of the key changes is the revision of the TDS threshold, which has been increased from ₹5,000 to ₹10,000 per financial year, effective April 1, 2025. TDS is deducted at 10% under Section 194 when the total dividend received from a company or mutual fund exceeds ₹10,000 in a year. For non-resident shareholders, the TDS rate remains 20%, subject to applicable Double Taxation Avoidance Agreements (DTAA).
Another significant rule concerns the deduction of interest expenses. Under Section 57, a taxpayer can claim a deduction for interest expenses incurred to earn dividend income, but the maximum deduction cannot exceed 20% of the total dividend income. No other expenses, such as collection charges or commission, can be deducted.
Is Dividend Income Taxable in the New Tax Regime?
Under the new tax regime introduced in Section 115BAC, dividend income remains fully taxable at the applicable slab rates of the taxpayer. The new regime does not offer any specific deductions or exemptions related to dividends, including those under Section 57, which are available only under the old regime. Therefore, taxpayers who have opted for the new regime must include the entire dividend income in their total taxable income and pay tax accordingly. However, the simplicity of the regime ensures that no complex adjustments or deductions need to be calculated.
How Dividend Income Works in the Old Tax Regime
In the old tax regime, dividend income is taxable under the head “Income from Other Sources,” but taxpayers can claim a deduction under Section 57 for interest expenses incurred to earn such income. This deduction is capped at 20% of the total dividend income. The old regime also allows other deductions and exemptions that reduce overall tax liability, making it beneficial for those with significant investment-related expenses or other eligible deductions under Chapter VI-A.
For instance, if a taxpayer earns ₹1,00,000 as dividend income and incurs ₹30,000 as interest expense on borrowed funds, only ₹20,000 (20% of ₹1,00,000) can be claimed as a deduction, and ₹80,000 will be taxable as income.
Section 57 Deduction on Dividend Income: What’s Allowed
Section 57 of the Income Tax Act permits taxpayers to claim a deduction for interest expenses incurred to earn dividend income. However, the deduction is limited to 20% of the total dividend income. The purpose of this provision is to allow taxpayers to offset part of their financing costs but prevent excessive claims that could lead to tax avoidance.
For example, if an investor borrowed ₹2,00,000 at 10% interest to invest in dividend-yielding shares, and received ₹40,000 in dividends, the maximum deduction allowed would be ₹8,000 (20% of ₹40,000). It is crucial to maintain documentation such as loan statements and bank proofs to justify the deduction in case of assessment.
Budget 2025 Updates: TDS Thresholds and Compliance Rules
Budget 2025 introduced notable changes to improve tax compliance and ease reporting for investors. The most prominent update is the increase in the TDS threshold on dividends from ₹5,000 to ₹10,000 per year. This change benefits small investors who earn lower dividend incomes, as TDS will now apply only when the total dividend crosses ₹10,000.
Additionally, the Central Board of Direct Taxes (CBDT) has released updated validation rules for Income Tax Returns, ensuring that dividend income is correctly reflected under “Schedule OS” and TDS details match those reported by companies or mutual funds. These validations aim to minimize data mismatches that often result in scrutiny or automated notices.
How to Report Dividend Income in ITR (2025)
Reporting dividend income accurately in the Income Tax Return is crucial to avoid mismatches with data in Form 26AS or AIS. Dividend income should be reported under “Schedule OS – Income from Other Sources.” The total amount to be entered is the gross dividend received during the financial year, before deduction of any TDS. Taxpayers must also disclose the TDS deducted by companies or mutual funds under “Schedule TDS.”
Any deduction under Section 57 for interest expense should be entered separately in the relevant column. It is important to reconcile the dividend figures with the Annual Information Statement (AIS) to ensure that no income is under-reported or omitted.
Step-by-Step Process for Reporting Dividend Income in ITR
Collect dividend statements from companies, mutual funds, or DEMAT accounts.
Check Form 26AS and AIS to confirm the total dividend and TDS details.
Choose the correct ITR form based on your income sources.
Report the gross dividend income in “Schedule OS – Income from Other Sources.”
Enter the TDS amount deducted in “Schedule TDS.”
If applicable, claim the interest expense deduction (up to 20%) under Section 57.
Verify that the figures in the ITR match those in Form 26AS and AIS.
E-verify your return to complete the filing process.
Following this sequence helps prevent mismatches and ensures smooth processing of the return.
Which ITR Form to Use for Dividend Income
The correct ITR form depends on the nature and sources of the taxpayer’s income:
ITR-1: For salaried individuals with dividend income from domestic companies only.
ITR-2: For individuals and HUFs with income from multiple sources, including capital gains or foreign dividends.
ITR-3: For taxpayers with business income or professional earnings alongside dividends.
Selecting the wrong form may lead to processing errors or delayed refunds.
How to Claim TDS Credit for Dividend Income
To claim TDS credit, verify the total tax deducted on dividends in Form 26AS and AIS. The TDS amount should be reported under “Schedule TDS” in the ITR form. The Income Tax Department automatically adjusts this TDS against the total tax liability. If excess tax has been deducted, the balance is refunded to the taxpayer after processing. Always ensure the TDS figures match with records provided by companies or mutual funds to avoid rejection of credit claims.
Advance Tax and Dividend Income: When It Applies
Dividend income is subject to advance tax if the total tax liability for the financial year exceeds ₹10,000. Since dividend payments are irregular, taxpayers may face challenges estimating advance tax. Section 234C provides relaxation, allowing no interest liability if the shortfall arises solely due to unexpected dividend receipts, provided the remaining installments are paid promptly after the dividend is received.
Common Errors to Avoid While Reporting Dividend Income
Reporting net dividend (after TDS) instead of gross amount
Failing to include dividend income reflected in AIS
Claiming more than 20% interest deduction under Section 57
Using the wrong ITR form for multiple income sources
Ignoring foreign dividend reporting requirements under Schedule FSI
Omitting to verify data with Form 26AS before submission
Avoiding these mistakes ensures accurate reporting and reduces the risk of receiving income tax notices.
Double Taxation Concern and Government Response
Currently, dividend income is taxed twice—first at the corporate level (around 25%), and again at the shareholder level (up to 35%). This results in a combined tax burden that can exceed 48%. The government is evaluating proposals to cap dividend taxation at 15% to prevent discouraging investments. While no official amendment has been enacted yet, policy discussions are ongoing to bring relief to retail investors and enhance equity participation.
How TaxBuddy Simplifies Dividend Income Reporting
TaxBuddy offers automated solutions for accurate and stress-free tax filing. The platform syncs your Form 26AS, AIS, and dividend statements to automatically detect and pre-fill dividend income details. It also identifies eligible deductions under Section 57 and ensures that TDS credits are claimed correctly. Whether using the self-filing or expert-assisted plan, TaxBuddy helps eliminate human errors and reduces the risk of notices for mismatched or unreported income.
Conclusion
Dividend income remains a vital part of investment returns, but accurate reporting is essential under the revised 2025 rules. With the higher TDS threshold and validation checks by the Income Tax Department, taxpayers must ensure complete and consistent disclosure across all documents. Platforms like TaxBuddy simplify the entire process through AI-driven data matching, seamless e-filing, and expert guidance, ensuring your return is accurate and compliant.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers both self-filing and expert-assisted plans to meet the needs of different types of taxpayers. Those comfortable handling their own returns can use the AI-driven self-filing option, where forms are prefilled with data from Form 16, AIS, and Form 26AS for quick and error-free submission. For users with multiple income sources, capital gains, or complex tax scenarios, the expert-assisted plan provides personalized support from qualified tax professionals who review every detail before submission. This flexibility ensures every taxpayer—whether salaried, self-employed, or an investor—can file accurately and confidently.
Q2. Which is the best site to file ITR?
Among the various online tax filing platforms available in India, TaxBuddy stands out as one of the most reliable and secure. It offers AI-driven automation, expert verification, and smart error detection tools that simplify the entire process of filing ITR. Unlike generic portals, TaxBuddy provides guided filing assistance, automated data matching with the Income Tax Department’s records, and personalized post-filing support. This makes it one of the most preferred options for individuals and businesses looking for a safe and seamless way to file their income tax returns.
Q3. Where to file an income tax return?
Income tax returns can be filed directly on the official Income Tax Department’s e-filing portal or through authorized platforms such as TaxBuddy. The official portal requires manual data entry and form selection, which may be suitable for experienced filers. However, platforms like TaxBuddy make the process faster and more convenient by automatically importing data from Form 16, AIS, and 26AS, selecting the correct ITR form, and validating all details before submission. Filing through such platforms reduces manual errors and ensures compliance with the latest Income Tax Department guidelines.
Q4. Is dividend income from mutual funds taxable in 2025?
Yes, dividend income from mutual funds continues to be taxable in FY 2024–25 (AY 2025–26). After the removal of Dividend Distribution Tax (DDT), investors are responsible for paying tax on dividends they receive. The income is added under the head “Income from Other Sources” and taxed according to the individual’s applicable income tax slab. Mutual fund houses also deduct TDS at 10% if total annual dividends exceed ₹10,000. Therefore, all such income must be accurately reported in the ITR to avoid mismatches and potential scrutiny by the tax department.
Q5. What is the new TDS threshold on dividend income from April 2025?
Starting April 1, 2025, the TDS threshold on dividend income has been raised from ₹5,000 to ₹10,000 per financial year under Section 194. This means no TDS will be deducted if the total dividends received from a company or mutual fund in a financial year are ₹10,000 or less. However, once this threshold is crossed, companies and mutual funds are required to deduct TDS at the rate of 10% for resident taxpayers. For non-residents, TDS continues to be 20%, subject to applicable DTAA relief. This update from Budget 2025 aims to ease compliance for small investors.
Q6. How to report dividend income from foreign companies in ITR-2?
Dividend income from foreign companies must be declared under “Schedule OS – Income from Other Sources” in ITR-2. Additionally, the details of such foreign income and taxes paid abroad should be reported in “Schedule FSI (Foreign Source Income)” and “Schedule TR (Tax Relief).” If tax has been withheld in the foreign country, the taxpayer can claim relief under Section 90 or 91 of the Income Tax Act to avoid double taxation, provided the relevant documents such as Tax Residency Certificate (TRC) and Form 10F are available. Proper disclosure is essential for compliance and to claim the foreign tax credit accurately.
Q7. Can expenses incurred for earning dividend income be claimed?
Yes, taxpayers can claim certain expenses incurred to earn dividend income under Section 57 of the Income Tax Act. However, this deduction is limited to interest expenses only and cannot exceed 20% of the total dividend income. Other expenses such as service fees, brokerage, or collection charges are not eligible for deduction. For instance, if a taxpayer earns ₹50,000 in dividends and incurs ₹15,000 as interest on borrowed funds, only ₹10,000 (20% of ₹50,000) can be claimed as a deduction. Proper records, such as loan statements or bank proofs, should be maintained to substantiate the claim in case of scrutiny.
Q8. What happens if dividend income is not reflected in Form 26AS?
If dividend income does not appear in Form 26AS, the taxpayer should still report it in the Income Tax Return based on actual receipts or statements from companies and mutual funds. Non-reporting can lead to discrepancies when the Income Tax Department cross-verifies data from the Annual Information Statement (AIS). If TDS was deducted but not yet reflected in Form 26AS, the credit can be claimed once the deductor updates their filing. It is important to reconcile all documents—dividend statements, AIS, and 26AS—to ensure accurate reporting and avoid tax notices.
Q9. Are dividends from foreign shares taxable in India?
Yes, dividends earned from foreign shares are fully taxable in India under the head “Income from Other Sources.” The income must be converted into Indian rupees using the prescribed exchange rate and declared in ITR-2. Taxpayers may claim a credit for taxes paid abroad under Section 90 or 91, depending on whether a Double Taxation Avoidance Agreement (DTAA) exists with that country. Accurate reporting under “Schedule FSI” and “Schedule TR” is mandatory. Failure to disclose such income can lead to penalties and interest for under-reporting or concealment of foreign assets.
Q10. Do I need to pay advance tax on dividend income?
Advance tax becomes applicable if the total estimated tax liability, including tax on dividends, exceeds ₹10,000 in a financial year. However, since dividends are often unpredictable, the Income Tax Department provides relief under Section 234C. If shortfall in advance tax payment arises only because of dividend income, taxpayers are not charged interest for underpayment, provided the remaining installments are paid promptly once the dividend is received. This ensures that investors are not penalized for irregular dividend payouts beyond their control.
Q11. Can companies deduct DDT on dividends in 2025?
No, companies can no longer deduct Dividend Distribution Tax (DDT). The DDT system was abolished by the Finance Act, 2020. Since then, the tax liability on dividends has shifted entirely to the shareholders or unit holders. Companies and mutual funds are only responsible for deducting TDS when dividends exceed the prescribed threshold. This reform was introduced to make dividend taxation more equitable and transparent while aligning India’s tax structure with global standards.
Q12. How can TaxBuddy help avoid mismatches and notices?
TaxBuddy’s advanced AI system automatically reconciles your dividend income with data from Form 26AS, AIS, and broker statements to ensure complete accuracy before filing. The platform pre-fills dividend details, applies the correct TDS credit, and checks for inconsistencies that commonly trigger tax notices. It also alerts users if income or TDS entries are missing and provides guidance on claiming deductions under Section 57. With both self-filing and expert-assisted options, TaxBuddy ensures your return is fully compliant, minimizing the risk of errors, mismatches, or scrutiny from the Income Tax Department.
