How to File Income Tax Returns on Dividend Income: Key Rules You Must Know

Filing income tax returns (ITR) on dividend earnings is a common concern for many investors in India. While dividends can be a steady source of passive income, the process of reporting them correctly in your tax return often creates confusion. One of the main reasons is the mismatch between the dividend amount credited to your bank account and the amount reflected in the Annual Information Statement (AIS). Understanding why this difference occurs and how to file your ITR accurately is essential to avoid errors, penalties, or unnecessary notices from the Income Tax Department.

Why Does the Dividend Amount Differ?

When a company or mutual fund distributes dividends, the amount that appears in your bank account is not the gross dividend but the net dividend. This means that tax has already been deducted at source (TDS) before the dividend is credited.

For example, if you are eligible to receive ₹1,000 as dividend, the company may deduct 10% TDS (i.e., ₹100) before crediting ₹900 to your bank account. However, your AIS will reflect the full ₹1,000 as dividend income, not just the ₹900 received.

This often creates confusion among taxpayers who assume that the bank credit is the taxable amount. In reality, you must declare the gross dividend (before TDS) while filing your ITR, and then claim credit for the TDS already deducted.

Taxability of Dividend Income

Since the financial year 2020–21, dividends are taxed in the hands of investors at their applicable income tax slab rate. Earlier, companies paid Dividend Distribution Tax (DDT), but that system has been abolished. Now, individuals are required to include dividend income under the head “Income from Other Sources.”

• Tax rate: Dividend income is added to your total taxable income and taxed as per your slab.

• TDS deduction: If your dividend income exceeds ₹5,000 from a company or mutual fund in a financial year, 10% TDS is deducted before payment.

How to Report Dividend Income in Your ITR

Here’s a step-by-step guide for taxpayers to file dividend income correctly:

1. Collect information from AIS and 26AS
   Check the Annual Information Statement (AIS) and Form 26AS on the Income Tax e-filing portal. These will show both the dividend amount and the TDS deducted.

2. Report Gross Dividend
   While filing your return, declare the gross amount (before TDS) as dividend income under “Income from Other Sources.”

3. Claim TDS Credit
   The TDS deducted by the company or mutual fund should be claimed as credit while filing your return. This ensures that you don’t end up paying tax twice.

4. Adjust Advance Tax Liability
   If your total dividend income, along with other earnings, pushes your tax liability above ₹10,000 in a year, you may be required to pay advance tax in quarterly installments.

5. Maintain Documentation
   Keep dividend payout statements, broker reports, and AIS records handy. These documents may be useful in case of a tax query or scrutiny.

Common Mistakes to Avoid

• Declaring only the net dividend credited to the bank account instead of the gross dividend.

• Overlooking TDS credit and paying higher taxes than necessary.

• Failing to reconcile dividend figures in AIS with your bank account and broker statements.

• Missing the advance tax deadline if dividend income is significant.

Final Word

Dividend income can be a rewarding addition to your finances, but accurate reporting in your income tax return is crucial. Always declare the gross dividend income as per your AIS and Form 26AS, and then claim TDS credit to avoid mismatches. With the Income Tax Department using advanced data-matching tools, any discrepancy could lead to notices or demands.

By following the right approach, you can file your return smoothly, stay compliant, and make the most of your dividend earnings without unnecessary tax hassles.