How dividends are taxed
| Item | Rule |
|---|---|
| Tax rate | Slab rate of the shareholder |
| TDS — residents | 10% if dividend from a payer exceeds ₹10,000 in the year |
| TDS — no PAN | 20% |
| TDS — NRIs | 20% plus surcharge and cess, or lower treaty rate with TRC and Form 41 (formerly 10F) |
| Deduction | Only interest on borrowed funds, up to 20% of the dividend |
| Advance tax | Dividends count; interest under 234C isn't charged on the shortfall caused by dividends received later |
Avoiding TDS on small dividends
If your total income is below the taxable limit, you can submit Form 15G (or 15H if you're 60 or older) to the company or its registrar so that TDS isn't deducted. Under the new Act these declarations continue with renumbered forms; registrars publish the current format each year.
Worked example: investor in the 30% slab
- 1Dividends received in the year: ₹80,000 from several companies.
- 2Tax at 30% = ₹24,000, plus 4% cess = ₹960.
- 3TDS of 10% was deducted on dividends from payers above ₹10,000 — say ₹7,000 in total.
Tax payable at filing ≈ ₹24,960 − ₹7,000 TDS = ₹17,960.
