Definition
Dividend Distribution & Taxation
Since 2020, dividends are taxed in the shareholder's hands at their income-tax slab rate, with TDS deducted by the company above a threshold.
Earlier, companies paid a Dividend Distribution Tax and dividends were tax-free for investors. From FY21, that was abolished: dividends are now taxable in the investor's hands at their applicable slab rate, and added to total income.
Companies deduct TDS at 10% if your total dividend from a company exceeds ₹5,000 in a year (you can adjust this against final tax). This shift made high-payout strategies less tax-efficient for those in higher slabs compared to capital gains.
Related terms
- Dividend Payout RatioThe dividend payout ratio is the share of net profit a company distributes to shareholders as dividends, with the rest retained for growth.
- Capital Gains Tax (Equity)Capital gains tax is the tax on profit from selling shares, with different rates for short-term and long-term holdings in India.
- DividendA dividend is a portion of a company's profit distributed to shareholders, usually in cash and on a per-share basis.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.