How to Declare Dividend Income in ITR?

Dividend income is the earnings received by shareholders from a company's profits. In India, dividends were previously tax-free in the hands of investors, but after changes in tax rules, dividend income is now taxable. Hence, it is essential to declare dividend income in your Income Tax Return (ITR) correctly.

What is Dividend Income?

Dividend income refers to profits distributed by a company to its shareholders. It can come from:

• Equity shares of a company
• Mutual funds (dividends received from equity/debt funds)
• Shares of foreign companies
• Dividends can be received in different ways, such as direct bank deposits, reinvestment plans, or through trading accounts.

Sources of Dividend Income

Dividends can be earned from various investments, including:

Shares of Indian Companies: If you own stocks of a domestic company, you may receive dividends as a return on your investment.

Shares of Foreign Companies: Investing in international stocks can also generate dividend income.

Equity Mutual Funds: If you have opted for the dividend payout option in equity mutual funds, you can receive periodic dividend payments.

Debt Mutual Funds: Some debt mutual funds offer a dividend option where earnings are distributed to investors.

Taxation on Dividend Income in India

Before FY 2020-21, dividends were tax-free for investors because companies paid Dividend Distribution Tax (DDT). However, from April 1, 2020, dividend income is taxable in the hands of the investor.

Here’s how dividends are taxed:

Tax Rates on Dividend Income

• For Individuals: Dividend income is added to the taxpayer’s total taxable income and taxed as per their applicable income tax slab.
• For NRIs: Dividend income is subject to a 20% TDS (Tax Deducted at Source) under Section 115A.

TDS on Dividend Income

• If dividend income exceeds ₹5,000 in a financial year, the company or mutual fund house deducts TDS at 10%.
• If the PAN is not linked to the demat account, TDS is deducted at 20%.

Advance Tax on Dividend Income

• If your dividend income is high, you may be required to pay advance tax in quarterly installments.
• If advance tax is not paid, you may have to pay interest under Section 234B & 234C.

Where to Report Dividend Income in ITR?

Dividend income must be reported under the “Income from Other Sources” section in your ITR.

For Domestic Dividend Income:

• Report under "Income from Other Sources"
• TDS details (if applicable) must be entered in Schedule TDS

For Foreign Dividend Income:

• Report under "Income from Other Sources"
• Declare it in Schedule FSI (Foreign Source Income)
• Claim Foreign Tax Credit (FTC) if tax was paid abroad (under DTAA rules)

Conclusion

Declaring dividend income correctly in your ITR is important to stay tax-compliant and avoid penalties. Since dividends are taxable, ensure you:
Report it under “Income from Other Sources”
Claim TDS credit to reduce your tax burden
Pay advance tax if applicable
Cross-check with Form 26AS & AIS

1. Do I need to declare dividend income if it's below ₹5,000?

Yes, all dividend income must be declared, even if no TDS was deducted.

2. Where can I check the TDS deducted on my dividend income?

You can check Form 26AS or the Annual Information Statement (AIS) on the income tax portal.

3. Can I claim a deduction for expenses incurred on dividend income?

Yes, under Section 57, you can claim a deduction of interest expense (up to 20% of dividend income) if you took a loan to invest in shares/mutual funds.

4. Do I need to file ITR if I only earn dividend income?

If your total income (including dividends) is below ₹2.5 lakh, ITR filing is not mandatory. However, it is recommended to file ITR for financial records.

5. How do I declare foreign dividend income in ITR?

Foreign dividend income must be declared in Schedule FSI under Income from Other Sources. If tax was deducted in the foreign country, you can claim a Foreign Tax Credit (FTC) under DTAA rules.