Receiving dividend income does not necessarily mean that the tax deducted at source (TDS) on it will be your final tax liability. The company adjusts the amount deducted against your total tax payable when you file your Income Tax Return (ITR).
For dividends paid to a resident individual, TDS is deducted at 10%. The threshold for an individual shareholder has been increased to Rs 10,000 in aggregate dividends from a company during a financial year for payments made from April 1, 2026.
This means that if a company pays you Rs 1 lakh in dividends during the financial year, Rs 10,000 could be deducted as TDS, leaving you with Rs 90,000. However, your final tax depends on your overall taxable income and the applicable tax regime.
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When Can TDS Be Refunded?
The Rs 10,000 deducted as tax can be claimed back from the government if your final tax liability is lower than the amount already deducted.
For example, if your total taxable income is within a range where no tax is payable after applying the applicable exemption, deductions and rebate, the TDS deducted on the dividend can be claimed as a refund.
The refund is not automatic. The taxpayer has to file an ITR and claim the TDS credit. The Income Tax Department then adjusts the TDS against the final tax liability and refunds the excess amount into your bank account, subject to processing of the return.
What Are The Income Limits?
Under the old tax regime, the basic exemption limit is generally Rs 2.5 lakh for individuals below 60 years, Rs 3 lakh for resident senior citizens aged 60 to below 80, and Rs 5 lakh for resident super senior citizens aged 80 and above. A resident individual can also claim a rebate of up to Rs 12,500 if total income does not exceed Rs 5 lakh.
The basic exemption limit under the new tax regime applicable for AY 2026-27 is Rs 4 lakh. The slabs then increase progressively, while resident individuals with taxable income up to Rs 12 lakh can claim a rebate of up to Rs 60,000 under Section 87A.
When Can Dividend Income Become An Extra Tax Bill?
Dividend income is generally taxable in the hands of the shareholder and is included in total income for determining the applicable tax liability.
If your total taxable income places you in a tax slab higher than the 10% TDS already deducted, the TDS may not cover your entire liability.
For instance, if the applicable tax rate on the dividend income works out to 20%, a Rs 1 lakh dividend could result in Rs 20,000 of tax before considering other applicable provisions. If Rs 10,000 has already been deducted as TDS, the remaining Rs 10,000 would have to be paid while filing the ITR.
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Similarly, if the applicable rate is 30%, the tax attributable to the dividend could be higher, although the final liability depends on total income, deductions, rebate, surcharge and cess.
Taxpayers should also keep an eye on their overall tax liability during the year. If the tax payable after accounting for TDS and other credits is Rs 10,000 or more, advance-tax provisions may apply.
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