ITR Filing 2026: Received Dividend Income or Sold Bonus Shares? Avoid These Costly Mistakes While Filing Your Tax Return

As the Income Tax Return (ITR) filing season for Assessment Year 2026-27 begins, investors who earned dividend income or sold bonus shares during FY 2025-26 must ensure accurate tax reporting. Even a small mistake can create mismatches with your Annual Information Statement (AIS) and Form 26AS, potentially attracting scrutiny from the Income Tax Department.

Understanding the correct tax treatment of dividends and bonus shares can help taxpayers avoid notices, delays in refunds, and unnecessary compliance issues.

How Should Dividend Income Be Reported?

Dividend income is taxable according to the taxpayer's applicable income tax slab rate.

Under Section 194 of the Income Tax Act, companies may deduct Tax Deducted at Source (TDS) at 10% if the total dividend received during a financial year exceeds the prescribed threshold. If PAN details are not provided, the TDS rate may be higher.

Where to Report Dividend Income in ITR?

For taxpayers filing ITR-1 or ITR-2, dividend income must be reported under:

Income from Other Sources (Schedule OS)

A common mistake many taxpayers make is reporting only the net amount received after TDS deduction. Instead, the gross dividend amount must be disclosed in the return. The TDS deducted can then be claimed separately as tax credit.

If excess tax has been deducted, the taxpayer may also become eligible for a refund.

How Are Bonus Shares Taxed?

Receiving bonus shares is not considered a taxable event. No tax is payable at the time of allotment.

Tax liability arises only when the bonus shares are sold.

Long-Term Capital Gain (LTCG)

If bonus shares are sold after holding them for at least 12 months from the allotment date:

• Profit is treated as Long-Term Capital Gain (LTCG)

• LTCG on listed equity shares is taxed at 12.5%

• Exemption of up to ₹1.25 lakh per financial year is available under Section 112A

Short-Term Capital Gain (STCG)

If bonus shares are sold before completing 12 months:

• Profit is treated as Short-Term Capital Gain (STCG)

• Gains are taxed at 20%

Capital gains arising from bonus share transactions must be disclosed in Schedule CG of ITR-2 or the applicable return form.

Reporting Requirements Across Different ITR Forms

Tax experts advise that:

• Dividend income should be disclosed under "Income from Other Sources" in ITR-1, ITR-2, ITR-3, and ITR-4.

• TDS reflected in Form 26AS should be properly claimed under the tax credit section.

• Foreign dividend income may require additional disclosures in relevant schedules depending on the nature of investments.

Important Documents to Keep Ready

Before filing your return, keep the following records available:

• Demat account statement

• Broker contract notes

• Dividend statements

• AIS (Annual Information Statement)

• Form 26AS

• Annual tax statement

• Corporate action statement showing bonus share allotment details

Maintaining these records can be useful if the Income Tax Department seeks clarification in the future.

How to Avoid AIS and Form 26AS Mismatches

Experts recommend reconciling all investment-related information before filing the return.

Verify the following details carefully:

• Dividend received

• Share sale transactions

• Quantity of shares sold

• Sale value

• Holding period

• TDS credits

Do not blindly copy figures from AIS if they appear incorrect. Instead, use actual records and provide feedback through the AIS portal wherever necessary.

Mistakes That Can Trigger Tax Notices

Taxpayers should avoid the following common errors:

• Not reporting dividend income

• Reporting figures different from AIS or Form 26AS without justification

• Failing to disclose bonus share sales

• Incorrect calculation of capital gains

• Reporting only net dividend instead of gross dividend

• Incorrect reporting of foreign dividend income

• Ignoring large share market transactions

These discrepancies may be treated as red flags during return processing and could lead to further verification by the tax department.

Final Takeaway

For investors, accurate reporting of dividend income and bonus share transactions is crucial while filing ITR for FY 2025-26. Matching your return with AIS, Form 26AS, broker statements, and demat records can significantly reduce the risk of notices and ensure smooth processing of refunds.

Taking a few extra minutes to verify investment-related information can help avoid unnecessary tax complications later.