Dividend and Investment Tax in India

How are dividends taxed in India since the abolition of DDT?

The Finance Act 2020 abolished the Dividend Distribution Tax (DDT) effective 1 April 2020, ending a regime that had operated since 1997. Under the prior framework, Indian companies paid DDT at approximately 20% (including surcharge and cess) before distributing dividends, and shareholders received dividends free of further personal income tax. Under the current framework, no DDT applies at the company level, and all dividends received on or after 1 April 2020 are taxable in the shareholder's hands as "income from other sources" at the shareholder's applicable slab rates -- 5%, 10%, 15%, 20%, 25%, or 30% depending on total income under the new or old regime. Shareholders in the highest bracket face an effective rate on dividends that can exceed 35% after surcharge and the 4% health and education cess. [1]

What is the Section 194 TDS threshold for dividends in FY 2025-26?

Section 194 of the Income Tax Act requires Indian companies to deduct Tax Deducted at Source (TDS) at 10% on dividend payments to resident shareholders. The Finance Act 2025 raised the per-shareholder per-company threshold from INR 5,000 to INR 10,000 per financial year, effective 1 April 2025 (FY 2025-26 onward). TDS applies to the full dividend amount once cumulative dividends from a single company to a single resident shareholder cross INR 10,000 in the year. Where the shareholder does not furnish a Permanent Account Number (PAN), TDS rises to 20% under Section 206AA. The deducted TDS appears on the shareholder's Form 26AS and is creditable against the annual income-tax liability computed at return-filing time. Shareholders whose total income falls below the taxable threshold can file Form 15G (non-senior citizens) or Form 15H (senior citizens) to request nil TDS deduction. [1][2]

How is interest income taxed, and what deductions apply?

Bank fixed-deposit and savings-account interest is fully taxable at the depositor's applicable slab rates as "income from other sources." Section 194A requires banks, co-operative societies, and post offices to deduct 10% TDS on aggregate interest paid to a depositor per branch once cumulative interest crosses INR 50,000 per financial year (for non-senior-citizen individuals) or INR 1,00,000 per financial year (for senior citizens aged 60 and above). The Finance Act 2025 raised both thresholds from INR 40,000 and INR 50,000 respectively effective 1 April 2025. For non-bank payers (companies, NBFCs, firms), the TDS threshold under Section 194A is INR 10,000 per financial year. Two deductions partially offset interest income under the old tax regime only: Section 80TTA allows individuals below 60 to deduct up to INR 10,000 in savings-account interest per year; Section 80TTB allows senior citizens to deduct up to INR 50,000 across all deposit interest (savings, fixed deposit, recurring deposit, post-office deposits). Neither deduction is available under the new tax regime introduced by Section 115BAC. [3][4]

What are the new tax regime slab rates that apply to dividend and interest income in FY 2025-26?

India's new tax regime, which became the default regime from FY 2023-24 onward, was further revised by Budget 2025. Dividend income and interest income not subject to special flat rates are taxed at these slab rates under the new regime:

A Section 87A rebate effectively eliminates tax for resident individuals with total income up to INR 12,00,000. Salaried individuals also receive a standard deduction of INR 75,000, pushing the effective zero-tax threshold to INR 12,75,000. A 4% health and education cess applies on top of the computed tax across all income levels. Surcharge applies on income above INR 50 lakh and rises to 25% for income above INR 2 crore. The old tax regime with its Section 80C/80TTA/80TTB deductions remains available by election at return-filing time. [5]

How did the Union Budget 2024 change capital gains tax rates on equity and other assets?

The Finance (No. 2) Act 2024, effective 23 July 2024, significantly revised India's capital-gains framework. For listed equity shares, equity-oriented mutual funds, and units of business trusts where Securities Transaction Tax (STT) has been paid: Long-Term Capital Gains (LTCG) under Section 112A are now taxed at 12.5% (increased from 10%) on gains above INR 1,25,000 per financial year (the annual exemption was simultaneously raised from INR 1,00,000). Short-Term Capital Gains (STCG) under Section 111A are now taxed at 20% (increased from 15%). For all other long-term assets -- property, gold, unlisted shares, debt instruments -- Section 112 now applies a uniform 12.5% rate without the indexation benefit (previously 20% with indexation). Property transferred after 23 July 2024 is covered by the 12.5%-without-indexation rule; a transitional option allows property acquired before 23 July 2024 to be taxed at the lower of 12.5% without indexation or 20% with indexation under the Cost Inflation Index. Short-term gains on non-equity assets continue to be taxed at applicable slab rates. [6][7]

How are non-residents taxed on Indian dividend and interest income?

Non-resident individuals and foreign companies receive dividends from Indian companies under the special rate framework of Section 115A rather than at slab rates. Section 115A(1)(a) taxes Indian-source dividends at 20% (plus applicable surcharge and 4% cess) on a gross basis without any deduction for expenses. Where India has a Double Taxation Avoidance Agreement (DTAA) with the non-resident's country of residence and the non-resident furnishes a Tax Residency Certificate and Form 10F, the treaty rate -- commonly 10% to 15% under most Indian DTAs -- applies instead of the 20% domestic rate. Non-resident individual shareholders must obtain a Permanent Account Number (PAN); absent PAN, Section 206AA mandates a minimum 20% TDS regardless of treaty status. Interest income earned by non-residents on Non-Resident Ordinary (NRO) accounts is subject to 30% TDS under Section 195; interest on Non-Resident External (NRE) accounts is exempt under Section 10(4)(ii). [8]

For a full picture of India's investment and tax framework, see the India country overview.

The rules summarized here represent the statutory framework as enacted. Individual circumstances -- holding structure, treaty status, regime election, and surcharge bracket -- significantly affect effective rates. Consult a qualified tax professional registered with the Institute of Chartered Accountants of India (ICAI) or a cross-border tax specialist before making investment or filing decisions.