Quick answer: If a company pays you more than Rs 10,000 as dividend in a financial year, it must deduct 10% TDS under Section 194 before paying you. The dividend is still taxed at your slab rate when you file your ITR — the TDS is only an advance payment, and you claim it back as a credit.
Dividend feels like free money. Your shares pay you, the cash lands in your bank account, and life moves on. Then you check your bank statement and find the amount is a little less than the dividend the company declared. That missing 10% is TDS on dividend — tax deducted at source under Section 194.
This guide explains the rule in plain words: the rate, the Rs 10,000 limit, when no TDS applies, how to stop it with Form 15G or 15H, and how to claim the credit when you file your return.
By the numbers
- 10% — TDS rate on dividend when your PAN is on record (Section 194, now Section 393(1) Sl. 7 of the Income-tax Act, 2025).
- Rs 10,000 — the yearly threshold per company. Below it, no TDS. The limit was Rs 5,000 till 31 March 2025 and rose from 1 April 2025.
- 20% — the TDS rate if you have not given your PAN, or your PAN is inoperative.
- 1029 — the payment code the company uses when it deposits your dividend TDS.
- FY 2020-21 — the year dividend distribution tax (DDT) ended. Since then, dividend is taxed in your hands, at your slab rate.
What is TDS on dividend under Section 194?
Section 194 says that when an Indian company pays dividend to a resident shareholder, it must deduct tax at source before paying. The company is the deductor. You are the deductee. The company deposits the tax with the government against your PAN, and the amount shows up in your Form 26AS.
TDS applies at the time of credit or payment, whichever comes first. So even if the company credits the dividend to your account on 28 March and pays it on 2 April, the TDS is deducted when it is credited.
Three points matter most:
- The company deducts TDS only on dividend from shares of an Indian company. Dividend from a mutual fund is a different rule — Section 194K. Dividend from a foreign company is taxed in your hands, but no Indian company deducts TDS on it.
- The TDS is not your final tax. It is an advance. Your real tax on the dividend is your slab rate, worked out when you file your ITR.
- Both interim and final dividends attract TDS. A bonus issue of shares is not a dividend, so no TDS applies to bonus shares.
What is the TDS rate on dividend in 2026?
| Your situation | TDS rate |
|---|---|
| PAN given to the company or your broker | 10% |
| No PAN given | 20% |
| PAN inoperative (not linked with Aadhaar) | 20% |
| Dividend from a business trust (REIT/InvIT) to a resident unit holder | 10%, no threshold |
| Dividend paid to an NRI shareholder | 20% under Section 195 (DTAA can lower it) |
No surcharge or cess is added to the TDS for resident shareholders. The rate is a flat 10% of the dividend.
Under the Income-tax Act, 2025, which applies from 1 April 2026, Section 194 sits in the tables of Section 393(1), Serial No. 7, and the payment code is 1029. For FY 2025-26 (assessment year 2026-27), the old number Section 194 still applies. The rate and the threshold are the same under both Acts.
What is the Rs 10,000 threshold — and how does it work?
No TDS is deducted if the total dividend a company pays you in a financial year is Rs 10,000 or less. The Finance Act, 2025 raised this limit from Rs 5,000 with effect from 1 April 2025. For dividends received up to 31 March 2025, the old Rs 5,000 limit applies.
Three details catch people out:
- The limit is per company, per year. If Company A pays you Rs 8,000 and Company B pays you Rs 9,000, neither deducts TDS — even though your total dividend is Rs 17,000. Each payer checks only what it paid you.
- Once you cross the limit, TDS applies to the full amount — not just the excess. If a company pays you Rs 12,000 in a year, it deducts 10% of Rs 12,000 (Rs 1,200), not 10% of Rs 2,000.
- The limit is checked on the total for the year, not per payout. Four quarterly dividends of Rs 3,000 each add up to Rs 12,000. The company deducts TDS when the running total crosses Rs 10,000.
Worked examples
Example 1 — one company, Rs 25,000 dividend. The company deducts 10%, which is Rs 2,500, and pays you Rs 22,500. The Rs 2,500 appears in your Form 26AS as a credit.
Example 2 — two companies, Rs 8,000 and Rs 9,000. Neither company crosses Rs 10,000, so no TDS is deducted on either payout. You still report the full Rs 17,000 in your ITR.
Example 3 — one company, Rs 12,000 dividend. The threshold is crossed, so TDS is 10% of the full Rs 12,000 — Rs 1,200. You receive Rs 10,800.
Example 4 — 30% slab, Rs 50,000 dividend. The company deducts Rs 5,000 as TDS. Your real tax is 30% of Rs 50,000, which is Rs 15,000, plus 4% cess — Rs 15,600 in total. You pay the balance of Rs 10,600 when you file your return.
Is dividend income taxable in India?
Yes. Since FY 2020-21, dividend is taxed in your hands at your normal slab rate, in both the old and the new regime. Before that, the company paid dividend distribution tax and the dividend was tax-free for you. The Finance Act, 2020 ended that system.
That change is why TDS on dividend matters now. The 10% the company deducts is almost never your final tax. If your slab is 5%, you get a refund. If your slab is 30%, you pay the difference.
One deduction is allowed. If you borrowed money to buy the shares, you can deduct the interest on that loan against the dividend — but only up to 20% of the dividend income for the year, under Section 57. Brokerage and other charges cannot be deducted. For example, if you earned Rs 50,000 as dividend and paid Rs 8,000 as interest on the loan, the full Rs 8,000 is deductible because it is within the 20% cap of Rs 10,000. Your taxable dividend becomes Rs 42,000.
How is Section 194 different from Section 194K?
Both deduct 10% TDS on dividend-type income above Rs 10,000 a year. The difference is who pays you.
| Section 194 | Section 194K | |
|---|---|---|
| Payer | Indian company | Mutual fund (AMC) |
| Income | Dividend on shares | Dividend or IDCW payout on mutual fund units |
| Rate | 10% (20% without PAN) | 10% (20% without PAN) |
| Threshold | Rs 10,000 per company per year | Rs 10,000 per AMC per year |
| New Act number | Section 393(1) Sl. 7, code 1029 | Section 393(1) Sl. 4(i) |
| Certificate | Form 131 (old Form 16A) | Form 131 (old Form 16A) |
Capital gains on selling shares or redeeming mutual fund units do not attract TDS under either section. Only the dividend or IDCW payout does. For the full mutual fund rules, see our Section 194K guide.
How can I avoid TDS on dividend? Form 15G and Form 15H
If your total income is below the taxable limit, you can submit Form 15G (if you are below 60) or Form 15H (if you are a senior citizen) to the company or the AMC. The form is a declaration that you owe no tax, so the payer does not deduct TDS.
Two warnings:
- The form stops TDS at source. It does not make the income tax-free. If your income is actually above the limit, you still owe the tax — and filing a wrong declaration can draw a penalty.
- Submit the form to each company or AMC that pays you dividend, at the start of the financial year. A form given to one company does not cover the others.
- Form 15G and 15H are now Form 121 under the Income-tax Rules, 2026. The old names are still widely used by companies and brokers.
How do I claim TDS credit and refund in my ITR?
Follow these steps after the financial year ends:
- Check Form 26AS and your AIS. Log in to the e-filing portal and open Form 26AS and the Annual Information Statement. Both list the dividend paid and the TDS deducted, payer by payer. Match them with your bank statements. If a company’s TDS is missing, ask the company to correct its statement — you cannot claim credit for tax that was never deposited.
- Report the full gross dividend. In your ITR, enter the dividend before TDS under Schedule OS — Income from Other Sources. Do not report only the net amount that reached your bank.
- Claim the interest deduction under Section 57 if you borrowed to invest, capped at 20% of the dividend.
- Claim the TDS credit in the TDS schedule of the return. The credit is usually pre-filled from Form 26AS.
- Pay the balance or claim the refund. If your slab is higher than 10%, pay the difference before filing. If it is lower, the excess TDS comes back as a refund after your return is processed — usually within a few weeks of e-verification.
If the dividend or TDS in your return does not match the AIS, the portal flags it. File a rectification under Section 154 if a mismatch shows up after filing. You can also download the TDS certificate — Form 131, earlier Form 16A — from the company or from the TRACES portal; our Form 131 guide explains the 15 November deadline and the download steps.
What changed in 2026 and what stayed the same?
| What | Changed | Stayed the same |
|---|---|---|
| Section number | 194 → Section 393(1) Sl. 7 from 1 April 2026 | Rate and threshold unchanged |
| Threshold | Rs 5,000 → Rs 10,000 from 1 April 2025 | Per-payer, per-year check |
| Forms | Form 26Q → Form 140; Form 16A → Form 131; Form 15G/15H → Form 121 | Quarterly statement and certificate system unchanged |
| Taxation | — | Slab-rate taxation since FY 2020-21; DDT stays abolished |
| Payment code | Code 1029 under the new Act | Deposit by the 7th of the next month |
For companies, the duties have not changed: deduct at the time of credit or payment, deposit the tax by the 7th of the following month, file the quarterly statement in Form 140, and issue the certificate in Form 131. Late deposit draws interest of 1% per month for late deduction and 1.5% per month for late deposit. If a company files its quarterly TDS statement late, the fee is Rs 200 per day, capped at the TDS amount for the quarter.
Common mistakes to avoid
- Reporting the net dividend. Report the gross amount, before TDS. Reporting only what reached your bank understates your income and creates a mismatch with the AIS.
- Adding up dividends across companies for the threshold. The Rs 10,000 limit is per company. Two payouts of Rs 9,000 from two companies mean no TDS — and that is correct.
- Thinking no TDS means no tax. TDS is only collection. A dividend below the threshold is still taxable at your slab rate.
- Mixing up 194 and 194K. Share dividends and mutual fund IDCW have separate thresholds — Rs 10,000 per company and Rs 10,000 per AMC. They do not add up.
- Forgetting to check Form 26AS. If the company deducted TDS but did not deposit it, the credit is not in your 26AS. Check before you file, not after.
- Submitting Form 15G when you owe tax. The form is only for people whose total income is below the taxable limit. A wrong declaration can be penalised.
FAQ
Is TDS deducted on dividend income?
Yes. An Indian company deducts 10% TDS under Section 194 when the dividend it pays you in a financial year crosses Rs 10,000. Below that amount, no TDS is deducted — but the dividend is still taxable at your slab rate.
What is the threshold for TDS on dividend?
Rs 10,000 per company per financial year, from FY 2025-26. The limit was Rs 5,000 till 31 March 2025. The limit is checked separately for each company that pays you, not on your total dividend from all companies.
How much TDS is deducted on dividend?
10% if your PAN is on record, and 20% if you have not given your PAN or your PAN is inoperative. Once the Rs 10,000 threshold is crossed, TDS applies to the full dividend amount, not only to the part above Rs 10,000.
How can I avoid TDS on dividend?
Submit Form 15G (below 60 years) or Form 15H (senior citizen) to each company or AMC that pays you, if your total income is below the taxable limit. The form stops TDS at source. It does not make the dividend tax-free if you actually owe tax.
How do I claim a TDS refund on dividend?
File your ITR, report the full gross dividend under Schedule OS, and claim the TDS credit in the TDS schedule. If the TDS is more than your final tax, the excess is refunded after your return is processed. Check Form 26AS first to confirm the TDS was deposited.
Is dividend income taxable in India?
Yes. Since FY 2020-21, dividend is taxed at your slab rate in both tax regimes. The company no longer pays dividend distribution tax. You can deduct interest on a loan taken to buy the shares, up to 20% of the dividend income.
What is the difference between Section 194 and Section 194K?
Section 194 covers dividend on shares paid by an Indian company. Section 194K covers dividend or IDCW payouts from mutual fund units. Both deduct 10% above Rs 10,000 a year, but the threshold is counted separately — per company for 194, per AMC for 194K.
Do I need to file an ITR if TDS is already deducted on my dividend?
TDS deduction does not remove the need to file. If your total income is above the basic exemption limit, filing is mandatory. If it is below the limit but TDS was deducted, file a return to claim the refund — there is no other way to get the money back.
Official sources
- Income Tax e-Filing Portal (incometax.gov.in) — Form 26AS, AIS and ITR filing
- Income Tax Department (incometaxindia.gov.in) — Income-tax Act, 2025 and Rules
- TRACES — TDS Centralised Processing Centre (tdscpc.gov.in) — TDS certificates and statements
Reviewed by Asuthod Rathod, CA. Last updated: 12 November 2026.
Disclaimer: This article explains tax rules in simple words for general information. Tax law changes often, and your case may differ. Check the official portals linked above or speak to a qualified tax professional before acting.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.