Dividend income is taxable for investors, but you can manage this burden. Expert Anita Basrur said, "Investors should choose the Growth Option instead." This helps returns compound tax-free. From financial year 2026-27, you cannot deduct interest on loans used for such investments. Always reconcile your payouts with official tax statements.
Dividend delights everyone, but it also comes with a disclaimer of taxation. When a company distributes a portion of its profit among shareholders, the dividend income is taxable in the hands of investors. Tax deducted at source (TDS) is also applied if the payout exceeds a fixed threshold. For those who often end up paying taxes on their dividend, here are all the details to know about how to legally minimise tax burden on the payout.
"Investors should choose the Growth Option instead. This ensures that returns compound tax-free, and income is taxed only at favorable Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG) rates when you choose to sell," stated Basrur.
From financial year 2026-27, expenditure incurred to earn dividend income or mutual fund income taxable under the head 'Income from Other Sources' is not deductible under the amended provisions. Hence, borrowing to park money in dividend-paying securities will not provide an interest deduction against such income.
"Investors can still make informed choices about their asset allocation and investment horizon, but these decisions should be based on their financial objectives, risk appetite and the applicable tax treatment of each investment. Any tax planning should be undertaken within the law, rather than through artificial arrangements intended solely to reduce tax," Anita Basrur noted, while adding that investors must avoid borrowing to invest in dividend-paying securities for tax benefits.
"They should reconcile the amounts received with dividend statements issued by companies, broker or demat account statements, mutual fund statements, the Annual Information Statement (AIS), the Taxpayer Information Summary (TIS) and Form 26AS. Where tax has been deducted at source, the corresponding credit should be claimed in the return after verifying that the details match the tax records," the expert added.