Taxation of Dividend

(a) Dividend from Shares

• Resident Shareholder: Taxable at applicable slab rates; deduction allowed for interest up to 20% of dividend income; no other deductions. No deduction is allowed for any expenses (including interest) in the case of deemed dividend under Section 2(22)(f)
• Non-Resident Shareholder: Taxed at special rates (5%–15%) as per DTAA; no deduction allowed; Chapter VIA deductions not permitted.

(b) Dividend from Mutual Funds

• Resident Unit-holder: Taxable at applicable slab rates; deduction allowed for interest up to 20% of dividend income; no other deductions.
• Non-Resident Unit-holder: Taxed at special rates as per DTAA; no deduction allowed; Chapter VIA deductions not permitted.

(c) Dividend from GDRs

• Non-residents: 10% concessional rate under Section 115AC; no deduction allowed; Chapter VIA deductions not permitted.
• Employees of eligible Indian companies: 10% concessional rate under Section 115ACA; no deduction allowed; Chapter VIA deductions not permitted.
• Residents (other cases): Taxed at normal rates with limited deductions; deduction allowed for interest up to 20% of dividend income; no other deductions.
• Non-residents (other cases): Special rates under DTAA; no deductions.

(d) Dividend from REITs/InVITs

• Dividend from SPV (opted for Section 115BAA): Taxable in the hands of unit holders.
  • Resident Unit-holder: Taxable at slab rates; deduction allowed for interest up to 20% of dividend income; no other deductions.
  • Non-Resident Unit-holder: Taxed at special rates as per DTAA; no deduction allowed.
• Dividend from SPV (not opted for 115BAA): Exempt in the hands of unit holders under Section 10(23FD).
• Dividend received (other than SPV) by REITs/InVITs: Taxable in the hands of REITs/InVITs and Exempt in the hands of unit holders under Section 10(23FD).

(e) Dividend from AIFs

• Category I & II AIF: Pass-through status under Section 115UB; taxable in the hands of unit-holders as if earned directly.
• Category III AIF: No pass-through; taxed at AIF level and again in the hands of unit-holders.
• Category III AIF Located in IFSC: Certain incomes are exempt under Section 10(4D); if not exempt, concessional rates under Section 115AD apply and distributed income is exempt under Section 10(23FBC).

(f) Special tax rates applicable for non-resident assessee

(g) Inter-corporate Dividend

To prevent cascading tax, a domestic company can claim a deduction under section 80M if it receives dividends from another domestic or foreign company or business trust and redistributes them to shareholders at least one month before the return filing due date.

(h) Exemptions for dividend income

The following exemptions are available under the Income-tax Act in respect of dividend income: