How to Report Dividend Income in Your ITR and Avoid Scrutiny Notices for Incorrect Reporting
- Nimisha Panda
- Jun 11
- 10 min read
Reporting dividend income in your Income Tax Return (ITR) has become a critical compliance step after the abolition of Dividend Distribution Tax (DDT) under the Finance Act, 2020. Now, dividends are taxed in the hands of the investors at applicable slab rates. With advanced data tracking through AIS and Form 26AS, any mismatch between reported income and actual credit received can trigger scrutiny notices. From gross-value reporting to proper claim of TDS and deductions, each detail matters. Failing to get it right not only risks tax notices but could also lead to penalties. Correct reporting is not just good practice—it’s self-protection.
Table of Contents
Understanding Taxability of Dividend Income in FY 2024-25
In FY 2024-25, all dividend income—whether from domestic companies, mutual funds, or foreign shares—is fully taxable in the hands of the investor. It is added to the total income and taxed at applicable slab rates. No exemptions or threshold benefits are available for dividend income. However, TDS is applicable on such income only if it crosses certain limits (covered later). Also, only specific deductions like interest on borrowed capital are permitted, capped at 20% of the dividend income.
Where to Report Dividend Income in the ITR
Dividend income must be reported under the head Income from Other Sources in your ITR. Depending on the ITR form applicable to you:
In ITR-1, report dividends in Schedule OS.
In ITR-2/ITR-3/ITR-4, detailed disclosure is required in Schedule OS and the TDS schedule.
Always report the gross amount (i.e., before TDS), even if TDS has been deducted. This ensures accurate tax credit matching and avoids under-reporting.
Step-by-Step Guide: How to Report Dividend Income in ITR Forms
Collect Data: Gather dividend statements from your Demat account, mutual fund holdings, and bank accounts.
Access Form 26AS and AIS: Log in to the Income Tax portal and download these documents to reconcile entries.
Open Your ITR Form: Navigate to Schedule OS and enter the gross dividend amount.
TDS Entry: Report any TDS deductions under Schedule TDS. This is usually prefilled but should be verified.
Interest Deduction (Section 57): Enter eligible interest expenses incurred for earning dividends (up to 20% of dividend income).
Final Review: Double-check all entries for consistency with AIS and Form 26AS before submission.
Which Documents Are Needed to Report Dividend Income?
Bank Statements reflecting dividend credits
Demat Account or Mutual Fund Statements
Form 16A (if TDS is deducted)
Annual Information Statement (AIS)
Form 26AS from the Income Tax portal
Ensure all documents are up-to-date and reconciled before filing.
How to Match Dividend Income with AIS and Form 26AS
AIS (Annual Information Statement) and Form 26AS show dividend income reported by companies, RTA, and mutual funds. Steps to match:
Log in to the Income Tax portal
Download AIS and Form 26AS
Compare dividend entries with your own records
Look for missed entries, discrepancies, or incorrect amounts
Update your ITR data to reflect accurate gross income and TDS
Matching is critical. Even small mismatches can result in scrutiny or notices.
Common Reporting Mistakes That Trigger Scrutiny Notices
Reporting net dividend instead of gross amount
Missing out on dividends from multiple sources
Failing to reconcile with AIS or 26AS
Overclaiming interest deductions beyond the 20% limit
Ignoring foreign dividend income
Not reporting income just because TDS wasn’t deducted
Each of these can flag your return for further assessment.
How to Avoid Scrutiny Notices for Incorrect Dividend Reporting
Always report the gross dividend income
Cross-verify each dividend amount with AIS and Form 26AS
Include all sources, even if small or exempt from TDS
Claim only eligible deductions and within prescribed limits
If total income is below the taxable limit, submit Form 15G/15H to avoid TDS
Maintain accurate records and documents for reference
These proactive steps greatly reduce the chance of getting a notice.
TDS on Dividend Income: Thresholds and Claiming Credit
For FY 2024-25, companies and mutual funds deduct TDS at 10% if the dividend exceeds ₹5,000 per year per entity. This is set to rise to ₹10,000 from April 1, 2025. The deducted TDS is reflected in Form 16A and prefilled in your ITR. To claim credit:
Ensure TDS is reported correctly in Schedule TDS
Match TDS with Form 26AS
Adjust your tax liability accordingly
Submitting Form 15G/15H prevents TDS if your total income is below the basic exemption limit.
Deduction Under Section 57: Interest on Borrowed Capital
Section 57 of the Income Tax Act offers limited relief to taxpayers earning dividend income by allowing them to deduct interest expenses incurred for earning such income. While dividends are now fully taxable, this provision provides a narrowly defined opportunity to reduce taxable income—but only under strict conditions.
What is Allowed Under Section 57?
Only one specific type of expense is allowed as a deduction from dividend income: Interest paid on borrowed capital used for investing in dividend-generating instruments like equity shares or mutual funds.
This means if you've taken a loan—whether personal, margin funding, or overdraft—for the purpose of acquiring shares or mutual fund units, the interest paid on that loan may be deducted from your total dividend income.
What is Not Allowed?
Taxpayers often assume that any expense related to earning income is deductible. That’s not the case with dividends.
Here’s what you cannot claim under Section 57:
Brokerage or transaction fees
Advisory or fund management charges
Demat account maintenance fees
Courier, admin, or handling charges
Any other miscellaneous expense
The Income Tax Department has explicitly restricted these claims to interest expenses only.
Limit on Deduction: 20% Cap
The deduction for interest is capped at 20% of the gross dividend income received during the financial year.
Let’s understand with an example:
Particulars | Amount (₹) |
Gross Dividend Income | 1,00,000 |
Interest Paid on Loan | 30,000 |
Allowable Deduction (Max 20%) | 20,000 |
Taxable Dividend Income | 80,000 |
Even though ₹30,000 was paid as interest, only ₹20,000 (i.e., 20% of ₹1,00,000) is allowed as a deduction. The balance ₹10,000 cannot be claimed or carried forward.
Foreign Dividend Income Also Covered
The deduction is available for all dividend income—whether from domestic sources or foreign companies. However, foreign dividends must be reported in INR, and any interest paid on loans taken to purchase foreign stocks is also eligible, provided the documentation supports it.
Documentation Required
To validly claim this deduction:
Maintain loan sanction letters or overdraft agreements
Keep interest statements or bank loan schedules as proof
Ensure that the purpose of the loan (investment in dividend-earning instruments) is clear
Calculate the eligible amount carefully and mention it in Schedule OS of your ITR
If asked for verification, failure to produce documentation may lead to rejection of the deduction and possible reassessment.
Changes from Union Budget 2025: New TDS Threshold on Dividends
The Union Budget 2025 raised the TDS threshold on dividend income:
Old Limit: ₹5,000 per year per company or fund
New Limit (from April 1, 2025): ₹10,000 per year per entity
This change applies from AY 2026–27 and provides some relief for small investors. However, reporting the full income remains mandatory, regardless of TDS deduction.
Foreign Dividend Income: How to Report in Indian ITR
Dividend income received from foreign companies is fully taxable in India under the head Income from Other Sources. Unlike domestic dividends, where TDS may be deducted by Indian entities, foreign dividend credits often go unnoticed and unreported—leading to non-compliance, mismatches with AIS, and potential scrutiny.
Here’s how to ensure full and accurate reporting:
1. Report in Schedule OS
All foreign dividends must be declared under Schedule OS (Other Sources) in your ITR, just like domestic dividends. These should be reported in the gross amount, without deducting any foreign taxes or service charges. Whether credited through international brokerage accounts, foreign bank accounts, or through ADRs (American Depository Receipts), the entire sum is taxable in India.
2. Convert Foreign Currency to INR
The dividend amount should be converted into Indian Rupees using the RBI’s reference exchange rate on the date of receipt. Do not use bank rates or average monthly rates. This is important for accurate reporting and avoiding discrepancies.
3. Gross Reporting – No Deductions
Foreign dividend income must be reported as the gross amount received, even if foreign tax (withholding tax) was deducted at source. Indian tax law requires full inclusion of such income before any deductions or tax relief.
4. Claim Foreign Tax Relief (If Applicable)
If the dividend-paying foreign country has a Double Taxation Avoidance Agreement (DTAA) with India, the TDS deducted abroad may be claimed as a foreign tax credit. To avail this:
File Form 67 on the Income Tax portal before submitting your ITR
Maintain documentation: dividend credit notes, broker statements, and proof of tax deducted
Ensure the foreign TDS is declared correctly in the Foreign Tax Credit section of your ITR
This relief prevents double taxation on the same income.
5. Common Pitfalls to Avoid
Ignoring small foreign dividends: Even minor foreign dividend credits are taxable
Using net figures after foreign tax: Only gross amounts should be reported
Omitting Form 67: Without filing this form, DTAA benefits can’t be claimed
Mismatches in currency conversion: Always use RBI rates to avoid under-reporting
Failure to disclose foreign dividend income is treated as undisclosed foreign income under the Black Money Act, which can attract severe penalties.
How TaxBuddy Helps with Accurate Dividend Income Filing
TaxBuddy eliminates the guesswork from dividend income reporting by offering a smart, tech-enabled platform that ensures every detail is captured, verified, and filed correctly. Here's how it simplifies the process:
1. Automated Reconciliation with AIS and Form 26AS
TaxBuddy’s backend engine automatically pulls your data from the Income Tax Department’s Annual Information Statement (AIS) and Form 26AS. It then cross-verifies this with your manually entered or uploaded dividend records. This ensures nothing is missed—whether it’s a small dividend from a mutual fund or a large payout from equity shares.
2. Smart Detection of Missing Dividend Entries
The platform flags discrepancies between your investment statements and the government data. Even if a dividend wasn’t credited due to a holiday delay or was credited to a lesser-used bank account, TaxBuddy catches the mismatch. This reduces the risk of under-reporting, which could otherwise invite scrutiny.
3. Expert Review of Deductions Under Section 57
Not all deductions are straightforward. TaxBuddy’s expert-assisted plans include a review of any interest claims made under Section 57. The team ensures that only eligible interest expenses are claimed and that the 20% cap is strictly adhered to—keeping your return compliant and clean.
4. Real-Time TDS Validation
Whether TDS has been deducted by one company or multiple mutual funds, TaxBuddy’s system validates each entry in real time against Form 26AS. It checks for missing credits, duplicate claims, or incorrect amounts and helps you correct them before submission. This saves you from filing revised returns or responding to notices later.
5. Access to Self-Filing and Expert-Assisted Plans
TaxBuddy caters to both independent users and those who prefer guided support. You can choose the self-filing route with intelligent nudges and pre-filled suggestions, or opt for expert assistance if your income involves complex dividend or foreign asset reporting.
6. Seamless Mobile App Experience
Designed for convenience, the TaxBuddy mobile app allows users to track dividends, upload documents, view AIS matches, and file their ITR—all from their phone. Whether you're filing from your office, home, or even while traveling, the app keeps you in control of your tax data.
Conclusion
Accurate reporting of dividend income is more than a formality—it’s a safeguard against tax scrutiny and penalties. Always report the gross dividend, cross-check with AIS and Form 26AS, and claim deductions mindfully. If handling this seems overwhelming, modern tax solutions can help. 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 provides flexibility through both self-filing and expert-assisted tax filing plans. Individuals comfortable with filing their returns can use the self-filing option, while those seeking guidance can opt for professional assistance to ensure accuracy, especially for dividend income reporting.
Q2. Which is the best site to file ITR?
Several platforms allow ITR filing, including the official Income Tax Department portal. However, for a smoother, guided experience that helps in reconciling dividend income, TaxBuddy stands out by offering automation, expert review, and mobile access to simplify the entire process.
Q3. Where to file an income tax return?
You can file your ITR online at www.incometax.gov.in or through authorized platforms like TaxBuddy. Filing through TaxBuddy ensures that all income types, including dividend income, are reported accurately with expert validation.
Q4. Can I claim interest paid on loans taken to invest in dividend-yielding shares?
Yes, under Section 57, interest expenses incurred to earn dividend income are deductible. However, the deduction is capped at 20% of the total dividend income, and no other related expenses like brokerage or advisory fees are allowed.
Q5. Where should I enter dividend income in ITR-1?
In ITR-1, dividend income should be reported under Income from Other Sources in Schedule OS. Make sure to enter the gross amount before TDS, and match it with your AIS/Form 26AS to ensure accuracy.
Q6. How does TaxBuddy help in avoiding scrutiny for dividend income reporting?
TaxBuddy uses automated tools to cross-check dividend income with AIS and Form 26AS, alerts users about mismatches, and ensures that the correct gross values are reported. This reduces the risk of under-reporting and protects against scrutiny notices.
Q7. What happens if dividend income is not reported in ITR but appears in AIS?
The Income Tax Department cross-verifies AIS with your ITR. If dividend income is missing in your return but present in AIS, a mismatch is flagged, and you may receive a notice for under-reporting income, possibly with penalties and interest.
Q8. Can I skip reporting dividends if no TDS was deducted?
No. Even if TDS wasn’t deducted due to the dividend being below the ₹5,000/₹10,000 threshold, the income is still taxable and must be reported in the ITR. Omitting it may still trigger scrutiny through AIS reconciliation.
Q9. Is dividend income taxable under the new tax regime?
Yes, dividend income is taxable under both the old and new tax regimes. The applicable slab rates remain the same, and the same rules for gross reporting and Section 57 interest deduction apply, regardless of the regime chosen.
Q10. How do I know if TDS has been deducted on my dividends?
TDS on dividends, if deducted, appears in Form 26AS and AIS on the Income Tax portal. You may also receive Form 16A from the company or mutual fund paying the dividend. These sources confirm the amount and date of deduction.
Q11. What if I receive dividends in multiple bank accounts?
All dividend income—regardless of which bank account it’s credited to—must be consolidated and reported under Income from Other Sources. Maintain a record of all dividend credits across accounts and match them against AIS to avoid omissions.
Q12. Do I need to attach dividend statements while filing ITR?
No, supporting documents like dividend statements are not required to be attached while filing the ITR. However, you should retain them for reference, especially in case the Income Tax Department requests clarification or raises a scrutiny notice.
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