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Budget 2025: Dividend Distribution Tax - What it was & how it's taxed now
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What changed with dividend taxation?
Before FY21: Companies paid a Dividend Distribution Tax (DDT) before giving dividends to investors. This meant dividend income up to ₹10 lakh per year was tax-free for individual taxpayers. If someone earned more than ₹10 lakh in dividends, they paid a 10% tax on the excess amount.
From FY21 onwards: The government scrapped DDT and made dividends fully taxable in the hands of investors. Now, companies deduct TDS (Tax Deducted at Source) at 10% if a shareholder receives more than ₹5,000 in dividends in a financial year. This shift ensures that every investor pays tax on their dividend income based on their income tax slab.
The change places the responsibility of paying taxes on the investor.
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