Section 8 of the Income Tax Act deals with income earned in the form of dividends from companies. A dividend is the portion of profits distributed by a company to its shareholders. As per the Act, dividend income is taxable under the head “Income from Other Sources”, unless it is exempt under specific provisions. Earlier, companies were required to pay Dividend Distribution Tax (DDT), but after its abolition from April 1, 2020, dividends are now taxable in the hands of shareholders at their applicable income tax slab rates.
Taxpayers must also note that deductions on interest expenses incurred for earning dividend income are allowed up to 20% of such income. Furthermore, Tax Deducted at Source (TDS) is applicable when the dividend paid by a company exceeds ₹5,000 in a financial year.
Thus, Section 8 ensures that dividend income is properly accounted for under personal taxation, and taxpayers disclose it accurately in their returns to avoid penalties.
8. For the purposes of inclusion in the total income of an assessee,—
| (a) | any dividend declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2 shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be ; | |
| (b) | any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it. |