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The shift from the company level to the shareholder level, and TDS
Published by The Retail Trader · JUL 27, 2026 · Features
The tax treatment of dividends used to be different — the company paid tax before the payout. Now it is taxable in the shareholder's hands, and this change is big for planning.
Dividend is added to your income and taxed according to your applicable slab. Above a limit, the company also deducts TDS on the dividend.
That is why, for an investor in a high income bracket, the effective return on dividends comes down considerably.
This change alters some decisions:
• The after-tax return of high dividend yield strategies is no longer what it used to be.
• The difference between the growth option and the IDCW option now has to be viewed from a tax angle too.
• The TDS credit has to be claimed when filing the return.
• The timing of receiving a dividend is not in your control, and so neither is the tax timing.
It is wrong to treat a dividend as free income — it comes out of the company's value itself and the price adjusts by that much. Tax is charged on top of it, so a payout reaches your hands at less than what was announced.
This article is educational only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.