Archive · 10 Oct 2026
Expert Explains Legal Ways to Minimise Dividend Tax Burden
When a company pays part of its profits to shareholders, that money is usually taxable.
Some dividend payments may also have tax taken out before investors receive them.
Tax expert Anita Basrur says investors can consider growth options, where money stays invested and tax is generally due when they sell.
The article says those returns may then be taxed under capital-gains rules.
Starting in financial year 2026–27, certain costs linked to earning dividend income cannot be deducted under the amended rules.
Borrowing money to buy dividend-paying investments will therefore not create the interest deduction described in the article.
Basrur advises choosing investments based on personal goals, risk and investment timeframe.
Investors should report dividend income in their tax returns, usually under “Income from Other Sources.”
Dividend income from shares and mutual funds is generally taxable as income from other sources.
Tax deducted at source may apply when a dividend payout exceeds a specified threshold; the article does not state the threshold.
Tax expert Anita Basrur recommends considering growth options, where returns are taxed when investments are sold.
From financial year 2026–27, expenses incurred to earn dividend or mutual fund income will not be deductible under the amended provisions described.
Investors should avoid borrowing to invest in dividend-paying securities for tax benefits and report dividend income in their tax returns.
- Who
- Investors receiving dividend income; Anita Basrur, Partner in Direct Tax at Sudit K Parekh & Co LLP, provides guidance.
- What
- The article explains dividend taxation, possible tax-planning considerations, and how to report dividend income.
- When
- The changes to deductions discussed apply from financial year 2026–27.
- Where
- In India, in the context of filing income-tax returns.
- Why
- To explain how dividend income is taxed and how investors can make lawful investment choices while managing tax.
Dividend-focused investing
Growth-option investing
When income is received and taxed
Dividend-focused investing
Dividend-paying investments distribute income that is generally taxable to the investor when received.
Growth-option investing
The expert recommends considering a growth option, where returns remain invested and tax is generally addressed when the investor sells.
Borrowing costs
Dividend-focused investing
An investor might consider borrowing to buy dividend-paying securities, but the article says the interest will not be deductible against the specified income from financial year 2026–27.
Growth-option investing
Basrur advises against borrowing for dividend investments to obtain tax benefits and says decisions should instead reflect investment goals, risk appetite and horizon.
- Usual tax reporting
- Dividend income from shares and mutual funds is generally reported under “Income from Other Sources,” unless another provision applies.
- Tax deducted at source
- TDS may apply when a payout exceeds a fixed threshold; no threshold amount is given in the article.
- Growth option
- Basrur says investors can consider growth options, with tax applying when they sell and returns taxed at applicable LTCG or STCG rates.
- Deduction change
- From financial year 2026–27, expenditure incurred to earn dividend or mutual fund income taxable as “Income from Other Sources” is not deductible under the amended provisions.
- Borrowing to invest
- Interest on borrowing to invest in dividend-paying securities will not be deductible against the income described.
- Tax-planning advice
- Basrur advises that investment decisions reflect financial objectives, risk appetite and investment horizon, and that tax planning stay within the law.