How dividend tax works in India
Since April 2020, India taxes dividends in the hands of the shareholder, not the company. Resident individuals add dividends to total income and pay slab rates under whichever regime they use.
Payers withhold 10% when dividends from one company exceed INR 10,000 in the year, or 20% without a PAN. The withholding is only a prepayment, and the final bill follows the slab plus surcharge and cess.
Non-residents pay 20% plus surcharge and cess, unless a tax treaty gives a lower rate, commonly 5% to 15% with a residence certificate. Interest paid to earn dividends is deductible only up to 20% of the dividend income.
Tax rates at a glance
- Resident individuals
- Slab ratesNew or old regime
- TDS threshold
- INR 10,000
- TDS without PAN
- 20%
- Non-resident rate
- 20%
- Typical treaty rate
- 5% - 15%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
InvestorsHolding companiesFamily officesHigh earnersCross-border shareholders
Watch out for
- Withholding is not the final tax. A 10% TDS credit still leaves slab-rate tax plus surcharge and cess for high earners, with extra payable at filing time.
- Treaty relief needs paperwork. Non-residents must hold a valid tax-residence certificate and file Form 10F, or the payer must withhold at the full domestic rate.
- Mutual-fund payouts face the same logic through a separate withholding section. Check whether the payment is a dividend or a capital distribution before assuming the rate.
- Buybacks now compete differently with dividends, because buyback proceeds are taxed as capital gains with a promoter-level charge. Compare both routes on an after-tax basis.
Frequently asked questions
Does India tax dividends?
Yes. Dividends are taxed in the shareholder's hands at slab rates, with 10% withheld at source above INR 10,000 a year.
What is the dividend tax rate for NRIs?
Non-residents pay 20% plus surcharge and cess, or a lower treaty rate with a residence certificate and Form 10F.
Are dividends tax-free in India?
No, not since April 2020. The old dividend-distribution-tax system is gone, and shareholders now pay on dividends directly.